Pensions Bill
Baroness Hollis of Heigham Excerpts(11 years, 11 months ago)
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Baroness Hollis of Heigham (Lab)
I am slightly puzzled, but I think that the Minister is saying that if you could devise a way in which to find out that those who are on the new state single pension were in the very bottom decile, that or a similar group would be an appropriate one to be eligible for a cold weather payment, because it would be the group that under the previous regime would have got pension credit. I would have thought that anyone getting the new single state pension without any other supplementary income coming their way, whether through savings or an occupational pension, would, in the past, have automatically qualified for pension credit—in which case, he already has his population.
Lord Freud
I am always grateful to the noble Baroness when she comes up with solutions for us, and I can see her yearning to be on this side—perhaps not in this particular coalition but in this particular ministry—sorting out these issues. She has gone to the issue of what the best way might be in which to help this group, which, clearly, we will look at precisely when we consider that matter. I shall pass on her thoughts to the consultation in the hope that it will speed it up.
As I say, we will consult on our strategy, and that will cover the two schemes referred to in the amendment of the noble Lord, Lord McKenzie, as well as broader approaches to combating and preventing fuel poverty, which the noble Baroness, Lady Hollis, indicated. On that basis, I urge the noble Lord to withdraw his amendment.
Pensions Bill
Baroness Hollis of Heigham Excerpts(11 years, 11 months ago)
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Lord Freud
Well, if they started moving to active members as well, whatever the route, it would give this group of organisations an enormous market position. I confirm to the noble Lord, Lord Hutton, that I will have to write to him.
It seems strange that, in response to the OFT’s conclusion that there is a lack of competition in the pensions market, the Opposition are calling for the creation of a market dominated by a few big master trusts. We need only to look at other industries, such as the energy market or banking sector, to see that dominance by a few powerful players can result in real concerns for consumers. If we were to press on regardless with enabling these large aggregators to come into being, we would need to be clear that there would be no turning back. It would be extremely difficult to reverse the process if we found that an aggregator model was not sustainable, and to tackle the vested interests if consumers were getting a poor deal.
We have heard—for example, from the noble Baroness, Lady Sherlock—that the Government are alone in supporting pot follows member. It is not true that few people support it but I agree that there is a powerful lobby supporting the aggregator model. It is hardly surprising that those who are shouting the loudest are those who are lobbying on behalf of master trusts that could come to dominate the market under an aggregator model.
The ABI itself supports pot follows member, as do many groups within it—Aviva, Fidelity, Friends Life, HSBC, Origo, Scottish Life and Scottish Widows—as well as non-members of the ABI such as Alexander Forbes, Altus, Buck, Foster Denovo, the Investment Management Association, JLT and the National Federation of Occupational Pensioners.
This Government’s starting point is the consumer—and it is the individual who wants to see their pension follow them to their new employer, as the research from NOW: Pensions, which we have already touched on, underlines. The ABI’s consumer research showed that 58% of individuals said that the pot should follow them automatically to the new job; 10% were in favour of a new central scheme, the aggregator; 15% said the pot should stay where it is and it is up to you to move it; and 17% said it should be visible with all other pension pots at a central place online. That is the sentiment among consumers.
I appreciate that some consumer groups have concerns. I say to them that we are listening to those concerns and that low charges and scheme quality are top of our agenda, not just for automatic transfers but for all schemes. We want these groups to work with us and the industry now to deliver pot follows member in the simplest, safest way for consumers.
The noble Baronesses, Lady Drake and Lady Sherlock, raised concerns about consumer detriment. I remind the House about the work the Government are doing to ensure that all schemes are good schemes. Uniformity is not good for consumers, but only if all aggregators had identical charges and standards would we completely remove the risk of an individual moving to a worse scheme. The noble Lord, Lord Turner, made the point about the interconnectedness of these issues. The Minister for Pensions has confirmed that he remains “strongly minded”—I think that is fairly parliamentary language —to introduce a charge cap. My noble friend asked about the DWP response to the OFT and the consultation on charges. That response is coming soon and we will be discussing that later this afternoon.
Baroness Hollis of Heigham (Lab)
Can the Minister tell us what the department has in mind as an appropriate charge cap?
Lord Freud
I am putting it on the record that we will aim to capture all costs, including all transaction costs. As noble Lords know only too well, when you look into this legislation there are bits and pieces scattered all over the place, but I can summarise it in that very simple sentence. It is very similar to the point about proposed new subsection (6): it is just a drafting requirement that we do not overlay things and that we have a clear line. It is not to do with the EU.
I am sorry that the noble Lord, Lord Browne, was concerned about my overconcentration on my noble friend Lord Lawson. I did not mean to do any airbrushing but I did mean to concentrate on the fact that I believe that my noble friend Lord Lawson’s amendments in Grand Committee and at this stage have been especially helpful in pushing this whole debate forward.
Turning to Amendment 29 in the name of the noble Lord, Lord Browne, I would actually be very disappointed in the noble Lord if he was to decide to test the opinion of the House. I have been absolutely clear about the timing of government action. I do not understand why he would want to start stipulating in primary legislation the timing of when regulations would be brought, given the language that I am using to talk about what we are doing.
Even though I may not satisfy the noble Baroness, Lady Drake, with the clarity of my expression, I will go through what we are doing. Consultations have sought views on policy implementation. Employers made clear that they wanted sufficient notice of any new scheme requirements. The Minister remains strongly minded to cap charges and, as former Ministers know and can tell the noble Baroness, Lady Drake, significant policy decisions must go through due process, but the Government response is coming soon.
I hope that I have made it utterly, utterly clear what will happen. That is the reason that I do not want the noble Lord, Lord Browne, to test the opinion of the House, because that seems purely political, given what I have just said, and that is not in the spirit—
Baroness Hollis of Heigham
I thank to the Minister for giving way. Do the words of the Pensions Minister in the other place, “strongly minded”, have the full, unambiguous support of HMRC?
Lord Freud
Yes. I do not want to go into the Lobby on this. I do not think we should; that is not the way that we have conducted the Bill, which we have done by information, support and debating the issues. We should not reduce ourselves to having a debate when we are saying exactly the same thing across the House. That is my request of the noble Lord.
Lord Freud
My Lords, I do not think that anyone in the House can be under any misapprehension but that the Government value extremely highly the role of evidence, analysis, consultation and evaluation in policy-making. Our approach to designing this once-in-a-generation package of pension reforms has been heavily informed by a robust and wide-ranging evidence base. However, looking at the text of the amendment and its timing, I must make clear that the provisions on the new state pension, and many of the other provisions in the Bill, will simply not have been commenced by spring next year—the time used in this amendment. Therefore, all that would come out of such an amendment would be a rehash of the information that has already been provided to Parliament: there would be nothing to add. We have no particular objection to this amendment in terms of sentiment, but its timing is just not appropriate.
I will not spend a lot of time going through all the issues, which we have gone through in huge detail over the past weeks and months. However, I will touch on how we will monitor the impacts in the future and what the plans are. It is clearly imperative, as the noble Baroness said, that a set of reforms of this nature is accompanied by a strategic approach to monitoring at sensible intervals. I am not saying anything that noble Lords will disagree with when I state that pensions is a very long-term policy area, and that the impact of many measures will not be felt fully for decades.
As a society we are asking people to do more to think ahead and plan for their retirement. As a Government it is our duty to do the same in looking at the retirement outcomes of the population as a whole. Our retirement outcomes framework, published in September 2013, provides an overview of projected future retirement incomes, looking at the impacts of government pension reforms as a whole and across state and private systems.
Baroness Hollis of Heigham
Perhaps the noble Lord could write to me if he does not have the answer at his fingertips. I respect his concern for evidence and policy base, but, as he will know, that depends on longitudinal statistics and their consistency. There has been quite a lot of dispute about threats to discontinue some of the longitudinal statistics which show households below average income, recipients of benefits, what is happening with pension credit, and so on. My noble friend Lady Lister, who is not here at the moment, has been concerned about that. Can the noble Lord write to us and tell us what series of statistics will be kept from the implementation of this Act, so that we can track, for example, the groups that my noble friend has mentioned—the 1951 to 1953 group—and what is happening to people who will lose their derived rights as married women, widows, divorcees and so on? What assurances can he give us about how we can be sure that we are in a position, if we need to be, to adjust policy because we have the information to hand?
Lord Freud
That is clearly a relevant and central set of issues, and it is quite technical. As the noble Baroness invited me to write, I will make sure that we produce a comprehensive look at exactly what these series are and what they will contain. I will be happy to arrange that.
Baroness Hollis of Heigham
Also, what if any future surveys does the Minister expect the Government now to engage in as a result of this Act coming into force?
Lord Freud
I am happy to make sure that we itemise those in a way that will help noble Lords keep an eye on what they need to monitor as we go along.
We will update the modelling as evidence becomes available on the impact on work and saving of automatic enrolment, the single-tier state pension, and state pension age changes. As noble Lords will know, the department conducts a six-monthly tracking study of attitudes and behaviours in relation to pensions, later life and automatic enrolment. A similar exercise will start after Royal Assent, to monitor awareness and understanding of the reforms.
We are committed to the principle of post-legislative scrutiny, but such scrutiny must have scope to provide insights beyond the impact assessment and consultation practices to which we are already committed. I know that the noble Baroness accepts the point on timing, but the timing of this amendment would not add materially to the powers of the Work and Pensions Select Committee. Indeed, there is an awkwardness about the timing, because it straddles the next election. However, we look forward to continuing to develop pensions strategy with that committee’s input.
I know that the noble Lord does not appreciate my asking for the other side to withdraw this amendment and not press it to a vote, but that is the position I am in. Maybe there is more warmth to my request than there has been this evening.
Pensions Bill
Baroness Hollis of Heigham Excerpts(11 years, 11 months ago)
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“( ) Regulations may provide for circumstances in which a person may opt to have a year treated as a qualifying year if by aggregating income from two or more jobs, that person’s earnings are equal to or greater than the lower earnings level for that year.”
Baroness Hollis of Heigham (Lab)
I am grateful for the tolerance of the House in allowing me to delay speaking for a moment or two while noble Lords are leaving the Chamber. They are clearly underwhelmed by the issue that we are about to debate.
I strongly welcome the new state pension. Pensions are attached to the waged labour market. Only one job in four created since 2008 is, according to the Work Foundation, permanent; 1 million or more are zero-hours contracts with no certainty of any work at all. Hundreds of thousands of others are short-hours contracts and, along with other non-standard employment patterns such as term-time working, job sharing and so on, comprise 40% of all jobs—I repeat, 40%—as employers seek to match a flexible and irregular labour force to flexible and irregular demand.
Part-time work and flexible work may suit, and does suit, many women, students or older people on a pension. Those jobs are in cleaning, catering, domiciliary care—involving 150,000 people—hotel and retail, and are usually paid at around minimum wage level. Very many of those people will not be building a state pension. Our pension structure, both state and private, has not yet caught up. It is 10 or 15 years behind as the plates shift in the labour market.
This amendment, which is permissive, seeks to put a pension floor under workers who may work in several mini-jobs and put in quite long hours—30 or so a week—but who cannot, under rules set out decades ago, build themselves a new state pension. If they are in one job with sufficient pay they will build a state pension, but if they are in several jobs with identical pay they do not. If your Lordships agree today we can begin to do something about it.
Under Governments of both parties we have sought to credit people into the national insurance system for a state pension where, for good reason, people are not in waged work. They include mothers of young children, disabled people and carers. Universal credit, which I strongly support, will credit another 0.8 million people into national insurance, I understand.
So where are we? From 2016 you will need 35 years’ worth of credits or payments into the national insurance system to get a full state pension. If you are unemployed and on JSA, and later on UC, you are credited in for free. If you have a child under 12, are a grandparent caring for a child whose mother works or are on disability benefits or carer’s allowance, you are rightly credited in for free. Your Lordships have over the years been at the forefront of pressing all Governments to bring such groups rightly into the national insurance system. If you earn above the lower earnings limit, or LEL, at £5,700 a year you come into the national insurance system for free. If you earn more than £7,500 in a single job you come into the NI system but pay. If, however, you work 30 hours a week and earn £11,000 a year but in several, splintered jobs, you cannot add the pay together to get above the LEL. Come retirement, you do not have a decent state pension.
Hence this amendment. It seeks an entirely permissive way in which to future-proof our state pension structure for those in the new flexible economy who work in and combine mini-jobs, by allowing them to combine the earnings from several jobs for a pension if that takes them over the LEL at £5,700. In the past, perhaps 50,000 people, mostly women, were affected, especially in rural areas, as they stitched together a patchwork of cleaning, fruit picking, bar work and so on, and they relied instead on their husband through the married women’s dependency pension. That pension, which would have protected her, is being abolished. She—or you, or we—is on her own and will not get any state pension from her patchwork of mini-jobs. From now on she gets nothing at all. The reason is that the labour market has changed dramatically in the past decade or so with the growth of zero-hours and short-hours contracts.
Short-hours contracts guarantee part-time work for three, 13 or maybe 23 hours. Zero-hours contracts, however, do not guarantee you any hours at all. You may in practice work 10, 15 or more hours fairly regularly. Equally you could find at the beginning of your shift, 10 minutes before you are due to start work, that there is no work for you: you get no pay and go home. I understand that every Domino’s Pizza worker is on a zero-hours contract—ZHCs—as are hundreds of thousands of staff in McDonald’s, Boots, Burger King, Subway, Wetherspoon and Sports Direct. They work in food joints, call centres, customer services and domiciliary care; they are cooks, cleaners, drivers and waiters; they are agency workers—almost all of whom are on zero-hours contracts. Most are on, or on around, minimum wage. Far from this being a shrinking sector of the market, the number of such contracts is increasing rapidly and very many of those workers will not be building a new state pension.
Baroness Hollis of Heigham
My Lords, first, I thank very much my noble friends Lady Drake and Lord Morris for their powerful and moving speeches. I thought that their contributions were extraordinarily impressive, and I am sure that they moved many people in this House.
I shall address first the comments of the noble Lord, Lord German, many of whose points were dealt with very effectively by my noble friend Lord Browne from the Front Bench. Basically, he ran two arguments. First, he said that most of the people concerned would be on UC, and he pressed the Minister instead on UC. Secondly, he commented on the problems for HMRC in combining possible jobs. On the first argument, on UC—and I am very much in favour of universal credit—we agree the statistics are that another 800,000 should come into the NI system as a result of crediting arrangements. That is great, but the point is that UC is income-based and that income is surprisingly low. No one has mentioned that today. For example, if you are a single person and you earn more than £4,000 a year in any job, well below the lower earnings limit, you are above the level for universal credit so you do not get credited in. If you are a married woman, your husband is in work and you have two children—I am aiming for a generic family, if you like—and if he is earning more than £12,000 a year, that family is not entitled to UC, apart from housing benefit. She may be earning £4,000 or £5,000, but that will not give her a credit through him. Those two groups of single people and married women, which my noble friend identified and I seek to identify, are both outside the reach of UC. What is worse—and neither the Minister nor the noble Lord, Lord German, mentioned this—is that it is happening at the same time as we are withdrawing the married woman’s dependency pension of 60% that she would have had as an alternative and could have relied on. That is what is new. If she cannot get into the pensions system through universal credit, she cannot get in at all, and that has been created and constructed by this Bill.
The noble Lord, Lord Freud, said that he was confident of his figures of 50,000 people, but he was equally confident about two years ago when we were debating welfare reform and the figures then were 20,000 or 25,000. They have doubled exponentially in the past two years or so, and they may go on to grow equally geometrically, as opposed to arithmetically, over the next few years. He says that his statistics are broadly in line, but I do not know about that. His statistics are based on labour force statistics offered by the ONS, which the ONS now says are unreliable; that therefore means that his statisticss are unreliable. My statistics of 250,000 are the best that I can do with all the evidence there is, overlaying different subsets. I accept that, but I am as confident as I can be on the evidence that exists that at least 250,000 people and maybe more—it is an increasing problem—are outside the national insurance system and will not be credited in either through UC or any caring responsibilities.
The noble Lord quoted average income. An average income is pulled upwards by the proportion of people who work in IT, for example, which is highly paid, or in further education, where they are paid piecemeal. The Chartered Institute of Personnel and Development—which the Minister quoted several times, although he did not quote this—says that 40% of the 1 million people who are employed work below 16 hours per week. We know that the majority of those are on, or on around, the minimum wage: for example, in jobs in domiciliary care, hotels, waiting, driving or security. A mean average is no use in this, because the figures are skewed hugely upwards by people in IT, who may be very well paid—perhaps at £50 per hour—and come within zero-hour contracts. We need to see how many people are below the LEL in one job and work in a second job that is also below the LEL, which together would bring them into the NI system from which they are currently excluded. I repeat: that figure is likely to be 250,000—nearly every single person and most married women.
The Minister says that it would produce all sorts of perversities and paradoxes. There is no greater perversity than the situation in which, if you are unemployed and on JSA, you are credited in for free national insurance, but if you work 30 hours a week in two 15-hour jobs, earn £11,000 and pay tax, you cannot get into the NI system and get no state pension. Which of those is the perversity? Do not work and you are in for free; or work as best you can, by putting jobs together, and you are outside the system. Is that right or decent? It is not. I would like to test the opinion of the House.
“( ) A person is not entitled to bereavement support payment and is exempt from work conditionality as specified in section 30(1A), if he or she has reached pensionable age.”
Baroness Hollis of Heigham
My Lords, I should like first to say a word about procedure. I am glad to see the noble Baroness, Lady Anelay, in her place; that is helpful. This is a paving amendment that the Public Bill Office assures me is appropriate. Amendment 21 in this group—and only Amendment 21—is consequential on Amendment 2. Therefore, any vote on the first amendment is, in the words of the Companion, also a vote on its directly consequential amendment—although it does not, of course, determine any other amendments in the group. If it were not directly consequential there would be no point in a paving amendment. As I have carefully taken the clerk’s advice on this, I hope that the Minister and the House will agree with my statements. If the Minister does not agree that Amendment 21 is consequential, perhaps he could indicate so now because I would not wish to waste the House’s time.
Baroness Hollis of Heigham
I am grateful to the noble Lord, as this allows us to have a substantive discussion on bereavement—which I know concerns many of your Lordships—in good time and not in the late hours this evening. I know that the Minister is sympathetic to the situation of distressed children and widowed parents. I hope that I can refer generally to widows, as there are three times as many women who are bereaved with children as men—and I know that the Minister means well by them. I hope that the House will agree that this is neither a party matter nor, as it is permissive, a cost matter, as the cost is almost too low to estimate.
This is a modest amendment that seeks to help widowed persons avoid additional pressure in the most stressful and distressing period of their lives. Three-fifths of bereaved parents are in work at the time of bereavement—virtually all fathers and around half or so of mothers. Most fathers with a terminally ill wife continue, or continued, to work. Most mothers, however, give up their jobs to care for their husband. Fathers would normally go back to work after a couple of weeks; indeed, they are often anxious to do so. Some mothers may feel able to do so as well, depending on the age of their children and the nature of their job. However, many widowed mothers were not in work, because they had younger children, or they had stopped working to become carers and—this is key—many mothers who were in work when their husband died drop out of work for some time while they support their children. If they return to work later, it may be to a different job, to one that is part-time or less demanding. Whereas work seems to be essential and continuous for fathers, it becomes secondary and broken for bereaved mothers.
The Government are reconstructing bereavement benefits, with more money paid as an up-front lump sum and less as a monthly payment—which, at £400 a month, will be paid only for 12 months and topped up by universal credit while the claimant is out of work. After 12 months, bereavement support payments stop and, if the parent does not return to work, she may draw her full income from UC. Being on UC normally entails work conditionality—entering or re-entering the labour market. The Minister has agreed—for which I am delighted—that for kinship carers, work conditionality associated with claiming UC should not apply for 12 months after they have taken on the care of children. But—and this is the point of my amendment—work conditionality for widowed parents, unlike for kinship carers, will kick in after six months, not 12 months, while they are still on bereavement benefit. That benefit runs for 12 months precisely because the Minister, in all decency—and I respect him for it—recognises that they need that support for 12 months. Surely work conditionality should be aligned with those 12 months.
The Minister said in Committee that he thought that six months’ relief from work conditionality while on bereavement allowance, if the claimant receives some UC top-up, was “generous”. I confess that that shocked me. It is generous only by comparison with the situation of someone who is not a bereaved spouse, and I think that that is not a proper comparison. If the mother has returned to work, or wants help to do so earlier than that—and some will—that is fine, but I do not think it right and decent to require her to attend work interviews and full work conditionality and job-hunting after six months, when she has grieving children who need her more than ever.
In Committee, the Minister justified this by saying that work conditionality after six months,
“is necessary to help them adjust and regain control of their lives”.—[Official Report, 15/1/14; col. GC 146.]
I was shocked by that as well. From my experience, the exact opposite is true. If work conditionality kicks in at six months while the woman is still on bereavement benefits and she is not ready for it, she loses what little control she has in handling her family life. Instead, that power is transferred to the DWP—perhaps to a 23 year-old young man in a local benefit office who, I expect, will be well intentioned until the pressure of targets bears down on him. He is probably a young man without children and without any experience of bereavement. It is assumed that he knows better than she does what is best for her and her children in their grief. I hope that he asks his own mother for advice, because he probably will not have a clue.
I do not think that that is acceptable. We are turning this young man at the age of 23 into her parent and treating her as the child, denying her, as a parent, the ability to look after her children in the way she believes is best. This is a sort of cruel-to-be-kind, tough-love philosophy towards a grieving widow and severely distressed children. Tough love is perhaps fine for youngsters who are on JSA and do not want to get up in the morning, but we are bullying into seeking work a widow with children who is still numb with grief and hugely distressed. We really cannot have that.
In this paving amendment and the consequential amendment attached to it I am not arguing that a widow’s benefit should be increased, although personally I would support that. The amendment is not about more money; it is about allowing widows to decide what is best for them and their family in the immediate aftermath of bereavement. For me, the immediate aftermath is the first year during which all the anniversaries occur—Christmas, his birthday and the anniversary of his death. I know, as do many of your Lordships, that that first year is the hardest.
I ask your Lordships to put themselves in the widow’s place. Her husband’s death may have been sudden, due to an accident at work or in the car, and she is still traumatised by the shock, or he may have died after an illness such as a stroke or cancer and she is exhausted through caring for him. She is wiped out and her mental and physical health is pretty fragile. It is just at this time when, although she is exhausted herself, her children are distraught and most need her. Children I know who have experienced the death of a parent have regressed into bed-wetting, nightmares, broken sleep and school phobia. They have lots of mysterious tummy aches and frequent headaches, and they display challenging and clearly needy behaviour. Irrationally, they suffer anguish that in some way they were responsible for their father’s death. They feel guilty that they had never told the lost parent how much they loved him and are fearful that they may lose their mother as well.
Older children worry about their mother’s safety if she is late back, or they fear they may lose their home. They are profoundly upset a second time over at their mother’s grief. Stoically they try not to weep, as that makes it harder for her to cope. “He is not here to hug me”, said one young girl. They dream of him and experience severe depression. Children need their surviving parent to be physically available for them. They need the trust that exists between a child and his mother to discuss their father’s death. Emotional availability follows from that. In Committee, the noble Lord, Lord German, quoted very movingly from research into the effect of bereavement on children’s later lives, from delinquency to poor mental health and suicide risk, and the noble Baroness, Lady Finlay, mentioned cases of multiple deaths.
Every family is different, as is the work status of any bereaved parent, but this amendment, at no cost, permits the bereaved parent to decide what is appropriate for her and her family. We know that currently, bereaved parents do not take all the time off that they could from work. They do not exploit the system; they do not abuse it; they do not milk it. They want to work when they feel fit enough and their children are steady enough, but only they know that, not the DWP or the local benefit office. That is the point of having 12 months of bereavement payments. Insisting on work interviews and work conditionality at six months, or even leaving it to the discretion of 23 year-olds in local offices, adds stress to the suffering of the parent and distress to the pain of the child. We really should not do that.
The amendment would give widowed parents a breathing space from work conditionality alongside a bereavement payment while they rebuild their fractured lives. This House has always looked out for widows and children and I hope that it will do so again today. I beg to move.
Baroness Hollis of Heigham
My Lords, the noble Lord has misrepresented both my amendment and my speech. I said that many parents would welcome it, but that the decision on at which point within that 12 months they returned to the labour market lay with them, not with the local benefit office.
Lord Freud
The point I am trying to make is that it is far better to recognise that individual responses to grief vary. As a number of noble Lords have said, grief often does not manifest in behavioural and emotional challenges until months or even years down the line, as a child matures. That is why, under universal credit, advisers have the flexibility to personalise requirements at any point, responding as circumstances arise. Where parents are facing difficulties with school, childcare arrangements or other extenuating circumstances, advisers can limit or even lift requirements.
I recognise that the application of that flexibility depends on the ability of those advisers. While I feel that our advisers are able, it is important to ensure that they have the best guidance and training to deal with such difficult cases. That is why we are currently working with experts in the field including the Childhood Bereavement Network, the Children’s Society, Cruse Bereavement Care, WAY and Gingerbread, to ensure that guidance and learning clearly articulate how advisers can identify and support parents in these circumstances, including the particular circumstances in which it would be inappropriate to apply conditionality. Our advisory services are also being repositioned as a profession with a clear career path, accredited learning and ongoing professional development. The learning programme will ensure that advisers have up-to-date skills to deal with any claimant interaction and support them in making relevant and appropriate decisions on an individual basis.
That is the standing position. I now move to the more specific response that I wish to make following our discussions in Grand Committee, particularly in answer to the points raised by the noble Baroness, Lady Finlay. I recognise that there are circumstances in which children could be in considerable distress and in which it is clear that conditionality should not be applied and flexibility is essential. I do not, however, see such cases as being limited to bereavement. There may be other circumstances in which children need additional care—for instance, where a family is fleeing domestic violence.
I assure the noble Baroness that we are not looking for a measure to define “distress”. Indeed, we need to establish exactly what the expression means; we are using it as a shorthand and there may be a much better way of capturing the concept, which is one of the things that a review should do. We are looking to identify specific circumstances in which we could expect a child to be distressed, and in which they will therefore have additional needs that need to be recognised. Claimants would need to demonstrate only the circumstances they are in, not the fact of distress, which is, as the noble Baroness has pointed out, extraordinarily difficult to establish.
I therefore want to conduct a review as quickly possible, in order to embed any new rules in the regime before we take new claims to universal credit from families. That is why I propose to undertake the review myself. I would like, in practice, to conclude that review by June or so. I will report back to the House following that. I am not quite sure of what form that will take but we will find the right form nearer the time.
Baroness Hollis of Heigham
I am sorry, but why? The noble Lord has already made the judgment on kinship parents. This is a permissive amendment, which he can draw on if needed. If he does not need it because of his review he does not need to deploy it. It is there as a safety net, so why is he asking the House to make it an either/or judgment?
Lord Freud
My Lords, this is not a permissive amendment. It makes a change to the conditionality regime for one element. If I need to look at how I do a review, I would have to look again at the specific context of doing this review.
Baroness Hollis of Heigham
I am sorry; I crave the indulgence of the House. Let me read the substance of Amendment 21:
“The Secretary of State may by regulation and within the overall budget for bereavement support payment exempt any widowed parent from work conditionality while in receipt of said payment”.
The Secretary of State “may” do that by regulation. As I said, the amendment is permissive. I am sorry that the noble Lord did not, perhaps, fully appreciate that.
Lord Freud
My Lords, let me make my point here. I will have to look again. As noble Lords know, a “may” in this context is a very substantial “may”. I will have to look again at the context in which I would want to do something such as this. I may very well want to do it, but I cannot make a commitment to have both at this stage. On that basis, I urge the noble Baroness to withdraw her amendment.
Baroness Hollis of Heigham
My Lords, I am still slightly baffled by the less than satisfactory response of the Minister. Let me first thank the noble Baroness, Lady Finlay, the noble Lord, Lord Rix, the noble Earl, Lord Listowel, the right reverend Prelate the Bishop of Wakefield and my noble friend Lady Sherlock for their very powerful and moving speeches on something that really matters: trying to protect and support widowed parents for the first 12 months of their bereavement. I welcome the Minister’s offer of a review on distress. However, what he has suggested is so wide that I rather doubt—although I would be pleased to be proven wrong—that he will be able to turn this into effective policy.
I give one tiny example, which I was thinking of as the Minister spoke. He was going to extend this to the distress of cohabiting parents when one of them dies. It is not too far fetched to suggest to the House a situation where a woman was with the father of her child or children in a cohabiting relationship but they then separated. She then had a period of perhaps five or seven years with someone else, to whom the children really connected and related. Then she moved on to a new boyfriend—a new stepfather—for perhaps the past year. Could the Minister tell me which of those three would have to die—forgive the language—for her to be entitled to bereavement benefit under the proposal of distress? Is it the recent stepfather, over whom the children are not especially distressed but the mother is highly distressed; the long-term stepfather, who has helped to bring them up, to whom the children were committed and over whom they are distressed while she is less so; or their natural father, who is giving them financial support and they see regularly? Which is it? I suspect one cannot do what the Minister seeks to do.
Lord Freud
My Lords, I am grateful to the noble Baroness for making the point for me. If we do these things piecemeal, we will not get the right answer. That is why my response to what the noble Baroness, Lady Finlay, said to me in Grand Committee was to think that we need to look at this comprehensively. We need to get this issue right across the piece and understand how to incorporate it as a whole into our conditionality regime. That is the response that I am looking to do, not to sort it out on the Floor of the House where we simply do not have enough information to do it properly at this stage.
Baroness Hollis of Heigham
My Lords, I make two points. First, we are not seeking to sort it out on the Floor of the House. I am seeking the consent of the House, if it is so minded to give it, to a permissive amendment, which does not commit the Government to anything they subsequently decide is inappropriate in the light of further research. The second point is that the Minister’s definition of distress is so wide that I genuinely believe, from my limited experience in Parliament, that he will find it very difficult indeed to turn it into deliverable policy. I am sure he is as aware as I am that it will end up depending on the discretion—he made this point himself—of local people in local benefits offices, such as the 23 year-old who will be interviewing the widowed parent. Is she numb? If so, does that mean she is coping or not caring sufficiently? Alternatively, is she voluble? Does that mean she is coping or not caring? He will have to peer into her soul and we should not go there.
The Minister says that he wants to help widowed parents to adjust, to,
“regain control of their lives”,
with tailored solutions. He is saying that the local benefits office, the 23 year-old, will decide. The 23-year old will turn her into his dependant, reliant on his judgment as to what she should do and what is best for her family. That is inappropriate and improper. You are making the adult back into a child and adding to her stress and distress. The Minister should not be going down that path. He will not be able to do it by clear policy; he will depend on discretion. Neither of those routes is satisfactory for a small and coherent group that we can easily define—that is, widowed parents with children following a bereavement.
The Minister is opposing a permissive amendment dealing with a small, specific group, which he can respond to exactly as he has already helped—and I am glad of it—kinship carers. He has allowed kinship carers 12 months off on work conditionality; he can do the same thing for this very specific group and make their work conditionality freedom align with the 12 months in which they are receiving bereavement benefit. After all, that is precisely why they have bereavement benefit in the first place. If they have it because they need support following their bereavement, at the same time they need the freedom from the additional pressure that the Minister’s work conditionality will ensure.
The Minister said that it was not quite either/or, but suggested that—
Lord Freud
My Lords, I just want to make the point that if you pick out particular groups and have legislation just for them, you end up with the kind of carbuncled benefit system that we are trying to escape from. I am determined to try to build a system that is coherent across the piece, and I want to look at all the situations to make sure that they are consistent.
Baroness Hollis of Heigham
My Lords, I understand the Minister’s support for grand schemes. We will see whether the grand scheme of universal credit, which I support, will deliver what he hopes that it does—and I hope it does. But here we are dealing with a situation in which we have kinship carers and widowed parents, and we may be talking subsequently about women experiencing distress in domestic abuse situations, and the Minister is trying to make something coherent. He is trying to fit them into one common mould, but he does not have to. He may come up with appropriate and different solutions for different groups because, as he himself said in his reply, every family is different and may need different help. This amendment would allow him to do precisely that.
The amendment does not cut across any review in any way, any more than his 12-month provision for kinship carers does. It seeks only to protect a small, identifiable and precise group from additional pressures of work conditionality at no cost at all and at a time when they and their children are most deeply distressed. I do not think that they should be put on the back burner for a review that may or may not deliver what I hope the House will think is the right path to take. If the review goes ahead and the Minister does not need the amendment, as it is permissive, he does not need to draw on it. If his review falters, which I think it will because he is asking too much of it, the amendment would give protection to some of the most vulnerable people in our country at the time of their deepest grief.
It is very simple. The amendment is permissive but says that we recognise the situation of widows and widowed parents and will give them, under the new system, one year of bereavement benefits and payments. This amendment asks for that one year, which we recognise is the period of most grief and distress, and that we should also not apply the pressure of work conditionality. This House has always looked out for widows and children, and I am asking the House to do it again today. The amendment is permissive and cost-free, and the Minister can build on it if he wishes to do the review. It is just a small safety net of help for grieving children and their grieving parent. I beg your Lordships to protect them tonight. I wish to test the opinion of the House.
Pensions Bill
Baroness Hollis of Heigham Excerpts(11 years, 11 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
“Pension statement
(1) The Secretary of State may by regulation introduce arrangements for the periodic notification to individuals of their entitlement to request a pension statement.
(2) Such regulations shall not require the provision of such notification before a person has reached the age of 45 nor, subject to subsection (3) below, more frequently than once every five years.
(3) Such regulations shall require notification of entitlement to receive a pension statement in the penultimate year before a person reaches state pension age.”
Baroness Hollis of Heigham (Lab)
My Lords, like others, I am delighted that we are introducing a new state pension, based on 35 years of contributions, which will help to float older people off poverty and encourage savings. However, if that is to happen, people have to know where they stand as they go along, especially women who may have acquired credits and young people on short hours-contracts, on which we voted earlier today. They need to know how reliably their state pension entitlement is building up and whether they need to take any action to make good shortfalls.
It seems obvious, does it not, that if we want people to build a pension they must know how they are doing, how far they have got and what they may get? We expect this from the private sector. Most of us get not only yearly but six-monthly statements about our ISAs, for example, and how they and we are doing. Usually—not always—it encourages us to save more. We all agree that we need transparency about charges and better information and guidance about our financial choices. The Government set up a money advice service to help people do precisely that.
Along with my noble friend Lord McKenzie, who regrettably cannot be in his place today, I was again taken aback in Committee to learn that there will be no such service and support in the field of state pensions. On the biggest investment a person may have—their pension—which, for many people, will be worth more than their home, they are working blind. People will be working and contributing, or not, and claiming credits to which they are entitled, or not, without any information and guidance to help them until shortly before they retire, when it may be far too late to change the hours of their job or claim a carer’s credit which might have brought them safely into the NI system.
How many women in their 40s and 50s with teenage children know that if they work 16 hours a week at minimum wage they will not usually be building a state pension, but at 18 hours a week they will? How many women know that by caring for elderly relatives for 20 hours a week they could, and should, get a carer’s credit? Not many, yet it is one of the most important things they need to know. How many women even know that they will not get a married woman’s dependant pension from 2016 on? Very few, I suspect. We do not and will not tell them, unless they have the wit to ask, until it is almost too late to do much about it. It is absurd and shameful. The DWP’s refusal to provide a level of service is unacceptable. None of us would accept this from the private sector. Indeed, the private sector would probably be pursued and prosecuted if it behaved like we do.
What is the Government’s position? They will respond to a query, which is likely to come from the alert, educated and informed, but they will not bother to trouble those who most need advice, information and guidance. Those who do not inquire and those who leave it too late are most likely to retire with a pension shortfall. Who are the people who are most likely to retire with a shortfall and who will not know until it is too late? What a surprise—women, I fear.
In Committee, the DWP quoted the cost of providing annual statements as a deterrent—a cost which, none the less, we expect the private sector rightly to bear. I therefore suggest that we consider the “nudge” theory: that if we cannot afford to provide annual, or even five-yearly, individual statements, at the very least DWP sends out periodically a standard letter, in bright bold print, two paragraphs only—I offer a draft— saying for example:
“You are able to draw your state pension at 65. To get a full state pension you need by 65 to have made 35 years of contributions into the National Insurance Fund which pays out your pension. Pension contributions may come from your job or you may be receiving free contributions credited towards your pension if, for example, you have children under 12, you are a carer, you are on universal credit, you are disabled or in other circumstances”.
Paragraph 2 would say:
“You may want to find out how many years contribution you have already built up. If so, please contact us either by phoning us on “x” or online at “y”. If as a result you think you may not have made enough contributions by the time you reach 65, we can send you a leaflet which tells you what steps you can take to build a full pension”.
I offer this template letter to the Government as a possible way forward. One standard letter—a nudge—telling people what they may wish to know, in bold print, going out to everybody at five-yearly intervals from the age of 45. It is a nudge for people to find out where they stand and if necessary to do something about it, to help people to help themselves. Otherwise why bother with a Pensions Bill—one that is more generous and certainly one that I support—if we do not want or seek to encourage people to build a full state pension at the end of it? Why bother? It must make sense to nudge people. I beg to move.
Baroness Turner of Camden (Lab)
I support my noble friend Lady Hollis on this amendment. I am sorry that the noble Lord, Lord McKenzie, is not here to second it, The Government have had a long-term policy—they kept telling us about it at every stage of this Bill—of being in favour of people saving for themselves in addition to having the pensions provided in the Bill. They expect people to save for themselves and they regard the pensions provisions that they are making as a kind of platform from which people can then make savings for themselves.
How are people to save for themselves if they do not have the necessary information about what their entitlement is? The amendment addresses the entitlement to a pension statement and notification of entitlement to a statement. All that is very necessary if people are to make sensible arrangements for their retirement. I am amazed to think that the Government may not accept this amendment. I hope however that they will because it is in line with their own thinking on the Bill. They want people to save. How do they expect people to save if they do not know what their entitlement is? They have an obligation to tell them what it is. Certainly it happens in the private sector; I belong to a private pension scheme and I get a regular statement as to what my entitlements are. Why can that not be the case for people who are receiving state benefits?
Baroness Hollis of Heigham
My Lords, I should like to thank my noble friends Lady Turner and Lady Sherlock for their contributions. I understand that the Minister is as committed as could reasonably be expected to trying to ensure that people are aware of and fully knowledgeable about their entitlements. I accept and absolutely understand that there is considerable virtue in having an evidence-based policy by building it up on the results of research into the most effective lines of communication. I also agree that a variety of responses may be wanted, including press, mailings and online, but I have to say that I would worry if it was largely dependent on online information, given what we know about many people’s recalcitrance over using online facilities as UC is rolled out. It may be that it is a generational thing and that over the next decade to 20 years the recalcitrance begins to disappear, particularly if places such as Norfolk end up actually having access to broadband.
My difficulty is that the Minister has a policy premised on the fact that those who know that they do not know will make the inquiry. The problem is around those who do not know that they do not know, and I am not confident that he has in place a strategy to make them aware of it. In the past, the people who were most vulnerable would have been married women who had been in and out of the labour market according to their caring responsibilities. They had a very straightforward safety net by the fact that they could have 60% of the husband’s pension as a baseline, and only if their own contributions exceeded that, as increasingly they have begun to do, would they draw on their own contributions. That is no longer the case. So the 60% married women’s pension is being withdrawn without, as far as I can see, ensuring that those women know, first, that they are losing what they would have counted on in the past and which is common knowledge, and secondly, what other benefits—or credits, I should say—they may be entitled to claim because that information is not being sent out to them in lieu.
I think that the Minister has a problem here. We are on the same side and I fully accept that he wants to make sure that people are aware of this, but I do not think he really understands what happens when the safety net of the married women’s dependency pension which has existed for 50-odd years is pulled away and women are told that they are on their own. He does not actually know, understand or appreciate what it may be like to find the headspace, resources and capacity to change behaviour in order to build up a pension. I am sure that this is not a gender point, but I really do not think that the Minister understands where women like that may be coming from. In the past, as the Minister will know, we had deficiency notices under NIRS 2. They told you whether you had incomplete NI records. When the computer, on which the Minister is relying so heavily, toppled over in the late 1990s or thereabouts and we could not get it back on its feet for several years, we increasingly lengthened the period during which someone could buy back their NICs or make contributions accordingly to cover the lack of deficiency notices. We were willing to do it then for everybody on an annual basis, as far as I recall, before the computer toppled over, yet the Minister is reluctant to go back to that. I understand the point about mailings and so on, but at the very least I press the Minister to identify in his research the at-risk group. For my money, the at-risk group are women, particularly married women, who had relied on the 60% married women’s pension, who were perhaps unaware in the past of the credits they could have claimed, including carer’s credits, and they are not on the list.
I would like some assurance from the Minister—it could just be a nod if he likes—that the at-risk group in particular can be identified. At 65 or 66, they could find themselves on their own with an incomplete state pension and it is too late to do anything about it because we have failed to keep nudging them. If the Minister could give me that assurance, I would be content.
Lord Freud
I would be very comfortable giving the noble Baroness that assurance. Clearly, a generalised mailing out is exactly what we are concerned about. The evidence is that people will get official-looking letters which they do not look at. We have to find a way of getting to the most vulnerable groups, who may take a Rumsfeldian attitude—they do not know what they do not know—and we have to find a way through that. Therefore, I can give the noble Baroness that assurance. I think we are basically agreed around this Chamber about the need to get the communication right, but we need to do the research. There is no point in us making it up without that knowledge.
Baroness Hollis of Heigham
With those assurances, I am content to withdraw the amendment.
Baroness Hollis of Heigham
I will just say a couple of sentences. I am very pleased indeed that the Government are building on the work of the last Labour Government in recognising the particular obligations that go with the military covenant and ensuring that the spouses of service personnel are not disadvantaged when it comes to a full state pension. I welcome this and am very glad that the department and the Minister have been able to meet the concerns raised in Committee.
Lord Browne of Ladyton (Lab)
My Lords, we welcome the Government’s amendment, which requires the introduction of regulations to provide for spouses and civil partners of service personnel to gain national insurance credits for periods spent on accompanied assignments prior to 2010. As my noble friend has just said, these provisions build on the reforms of the last Labour Government, who allowed credits to begin from 2010. I thank the Minister for the generosity of his remarks about my noble friends Lady Dean and Lord McKenzie and, indeed, his recognition of my own small contribution to this outcome.
However, it would be remiss of me if I did not express from these Benches that we are in no doubt who is entitled to the greater credit for this amendment being tabled. It is my noble friend Lady Hollis who is the heroine of the hour. There is no question that the Government have acted because she raised the issue so effectively in an amendment in Grand Committee. Before she did so—and I am sure that the Minister will confirm this—the Government’s position was an honourable one, but, as expressed on page 33 of the document The Armed Forces Covenant: Today and Tomorrow, they stated:
“At present the Government has no plans to make further adjustments to the tax and benefits system for Service personnel and their families but will keep this issue under review”.
The Minister indicated in Grand Committee that he would review it and his officials have kept us all informed of that review going on and it is to his credit that it has resulted in this outcome.
The Government deserve significant credit for responding in the way they have done and now at least we can say in relation to this issue that there is no disadvantage and that members of the Armed Forces community have access to the same benefits as any other UK citizen. As the Minister has said, the challenge now is to ensure that, of those potential 20,000 beneficiaries, the maximum number benefit from this opportunity. The current figures for applications for the 2010 credits are disappointing. Either the MoD now needs to build a process for credits to be automated, or it needs to improve its engagement with its own personnel, to inform people of the availability of the credits and to facilitate and encourage take-up.
I accept that the other government amendments are consequential and uncontroversial and we welcome them also.
“( ) The weekly rate is not to be increased under subsection (1) if a person has opted to receive a lump sum.
( ) The amount of any lump sum to which a person who has deferred entitlement to a state pension shall be set out in regulations.”
Baroness Hollis of Heigham
My Lords, we move to a new subject: deferred pension and how it may be taken, whether as income or lump sum. Over the past 15 years, most pensioners have for the first time been lifted out of poverty. In 1997 nearly half of pensioners were below the poverty line. It is now about one in seven: 14%, compared to nearly 50%. Pensions have risen three times faster than earnings, pension credit has topped up their income and now, we are pleased to say, pensioners are no more likely to be poor than any other group in society.
With pension credit for most future pensioners being absorbed into the new, more generous state pension, together with the guarantee of the triple lock, that journey out of poverty continues. Pensioners’ incomes, especially for those with no occupational pension, will be stronger and more stable than ever before. It is good news and I am delighted. I congratulate the Government on it, I really do.
We know, in any case, that most pensioners are very careful and spend up to their income and no more. They cope and they avoid debt like the devil. However, the growing problem is that those pensioners dependent on the state system, who may in future have a more adequate state pension, are also less and less likely to go into retirement with some modest savings as a cushion against rainy days or as a resource to meet lumpy expenditure. Currently, 21% of pensioners—one in five—have no savings whatever; 37%, more than a third, have less than £3,000 in savings; and half have less than £8,000. If the Minister gives us any mean averages, they are frankly a waste of time, as they were in a previous debate about hours.
Pensioners face soaring quarterly energy bills—I imagine other noble Lords, like me, have been slightly shocked in the past week or two to receive an energy bill rather larger than anticipated. The roof may need substantial work, especially after the gales, and may not be fully covered by insurance. Washing machines and boilers pack up. If they live in rural Norfolk, they may need to replace their old car with another, otherwise they are effectively housebound. They may have an outstanding mortgage and want to pay it off. What do the one in five who have no savings at all do when they are hit by a large utility bill? What do the more than one in three who have savings of less than £3,000 do when one of them dies and they face funeral bills?
We have, understandably, concentrated on building up pensioners’ incomes, and rightly so. However, we have largely ignored the issue of accessible pensioner savings for those of modest income. You can always turn capital into income—you just draw it down as you need it for that energy bill—but it is very hard to suddenly find £400 or more to pay the winter quarter energy bill from state pension income alone if you have no savings on which to draw. In other words, pensioners need savings, just as we all do, and too often they do not have any.
We recognised this when we did the deal with what was then Age Concern as we introduced pension credit in, I think, about 2002. The first £10,000 of savings would be disregarded for pension credit, although thereafter there was a high notional tariff rate. We recognised this need for savings when my noble friend Lord McKenzie made means-testing far more light-touch as pensioners became older. That is why, incidentally, I am seriously bothered about the new class 3A contributions, which encourage pensioners to use up capital to buy a year of S2P, taking an unwise gamble on their life expectancy, increasing their income by a bit but heavily reducing their capital. That is very unwise.
Above all, we recognised this when, back in 2005, we allowed pensioners who had deferred drawing their state pension to take that saved-up pension either as an income addition to their future pension—which is what most did—or as a lump sum to give them some savings. The Government propose to abolish the choice of taking that saved-up pension as a lump sum; it will be available to people only as an addition to the state pension. They are removing the choice of a savings sum from future pensioners. Currently, of the 1.2 million who defer their pensions, 63,000 take the lump sum, which was, on average, just under £14,000. In future, that option will be scrapped. Why? The Minister for Pensions, Steve Webb, is absolutely clear that he is doing it to “simplify the system”. It is not about costs at all, he says, just about simplicity. What is so difficult to understand about a lump sum of your two years or so deferred pension? It is complex, the Minister says, because DWP needs a 64-page leaflet to explain the choice. The Minister in your Lordships’ House, the noble Lord, Lord Freud, says the same.
As the Minister would expect, I have that 64-page leaflet. It is well written—well done to the DWP—simple to understand and straightforward. I have worked through it. I calculate that if, in the name of simplicity, you removed the choice of a lump sum and allowed only an increase in the pension, you would remove precisely 11 pages in total—I will give him the references if he wishes—so that the 64 pages would come down to 53. The rest of the pamphlet would remain unchanged apart from occasionally deleting the words “or lump sum” from, for example: what happens when I die, if I get divorced or if I am widowed; can I combine them; what if I live abroad; what are the effects on my benefits or on my tax; where can I find out more; what organisations may help me; and so on. That is what the 53 pages are largely about. All that applies to any deferred state pension, whether it is taken as an increment or as a lump sum—the argument of simplicity does not wash at all. It is a complete myth, and if anybody worked through that pamphlet, they would see it for themselves. I am confident that the Minister has worked through that pamphlet and I am therefore confident that he will agree with my assertion that it removes only 11 pages out of 64 in the name of simplicity, thus denying choice to people who want to exercise that choice. Taking out that choice in the name of alleged simplicity is, frankly, laughable—it is absurd. I have never seen such a trivial justification. It takes 11 out of 64 pages and thereby denies the choice of a savings lump sum to 65,000 people. I presume the Minister thinks people can understand 53 pages but that 64 pages is just too much. Really? Because he thinks, without any evidence, that they cannot manage those extra 11 pages, he will take the decision out of their hands and make it himself. He knows better than pensioners what they should do with their money. He cannot trust people who have been working and scrimping for 50 years not to waste any savings—their money—that they may accrue.
Mind you, if you have a private occupational pension and get a 25% lump sum tax-free, that is fine. You can do what you want with it. If you simply defer your S2P element, your additional pension, for two years you can take that as a lump sum. The Minister will not tell you how to spend that either. However, on a state pension, he is taking away the possibility of a lump sum—your money—that you have saved for, because, frankly, he does not trust you with it and is calling it simplicity if he takes 11 pages out of a 64-page pamphlet.
Some people, after two years’ deferral, may want that £14,000 of their money rather than the alternative of £14 a week. I would. They would be better off taking the £14 per week instead of a lump sum only if they live, I calculate, a further 20 years until they are aged 87. Those without savings are also poorer and least likely even to reach 80, let alone 87. Who are we talking about? They may be husbands working longer until their younger wife also reaches state pension age. They may both work longer, and one takes the income and the other the lump sum. They may have a somewhat impaired life expectancy; perhaps one is a smoker and they want the lump sum up front just in case that person does not survive to 87. The unspent portion of the lump sum can be inherited by the surviving spouse and would help cushion her—but if taken as increased income it dies with him.
We rightly spend hours trying to encourage people of working age to work longer. We rightly spend hours trying to get them to save. We know we need to build a savings culture. In a low-paid job, perhaps the only way they may be able to build savings is to defer their state pensions for a year or two, work a bit longer and take it as a lump sum. That may subsequently save them needing to get loans at huge interest rates because they have a lumpy bill, perhaps an energy bill, to meet. It allows them to make choices, which each one of us in this House takes for granted. Having just that extra margin in savings means that they can decide to help a grandchild, buy a washing machine that works, replace the carpet, celebrate a golden wedding anniversary, turn up the heating when it freezes or give a donation to their local church. They cannot do that out of income. They need savings. It is their choice, not ours. Pensioners, as they enter pension age, are moral adults and we should respect that and respect them. They have earned the right to that choice and we—and the Government—have absolutely no right at all to take that choice away. I beg to move.
Lord Freud
My Lords, in designing the single-tier reforms our overriding aim has been to deliver a flat-rate pension above the basic level of the means test without increasing spending, and to do so in a way that recognises people’s contributions under the current system. This is not easy to do and it involves difficult trade-offs. Some elements of the transition necessarily generate costs in the early years, particularly the “better of” calculation, which means that people with low amounts of additional state pension, such as carers, receive a boost. There is also the fact that those with high amounts of additional state pension, which take them over the full amount of the single-tier pension, are able to keep the surplus as a protected payment. Nevertheless, we have been able to stay within 1% of projected expenditure until 2040, which is fair to current pensioners and to future taxpayers.
In answer to the blunt question of the noble Baroness, Lady Sherlock, removal of the lump sum option for those who defer their state pension has played a key role in flattening expenditure. The early-year savings that this delivers have been ploughed back into the single-tier design. We are, however, still keen to preserve some flexibility for single-tier pensioners who, by choice or accident, claim after they reach state pension age, so people will still be able to build up an increase to their state pension that is paid on top of their single-tier entitlement for the rest of their lives. As discussed in Grand Committee, there remains the option of backdating a claim for a single-tier pension. By backdating their claim to a state pension, someone who has delayed claiming for whatever reason—either unintentionally or as part of a planned retirement—will be able to get up to 12 months’ arrears when they make their claim for a pension. This would provide someone who has qualified for the maximum weekly amount of £144 with arrears of almost £7,500 at 2012-13 prices.
Baroness Hollis of Heigham
Can the Minister help me with a technical point? With arrears, is the assumption that interest will be paid on the deferred money?
Lord Freud
What happens is that the amount is repegged to the year in which it is taken. If, for instance, someone’s delay in claiming exceeded a year, they would get an increment on top of the single-tier entitlement.
Baroness Hollis of Heigham
I am sorry but I still do not understand. This is a very simple point. At the end of the year in which you have not drawn your pension, do you get the equivalent of a return on capital—in other words, an interest payment—over and beyond the direct addition of 12 months of state pension?
Lord Freud
No, you do not get interest on arrears, but let me take the example of someone who delays claiming the maximum amount for two years and wants to backdate their claim for the 12 months. If we take the £144 example, they would get an increment of around £7.50 to £8 a week, depending on the value of the uprating, which would be added to their weekly entitlement. It would also include the calculation of arrears due to them for the backdated period. That would boost the overall arrears payment to more than £8,000, so that is the mechanism through which the delay works.
On the question from the noble Baroness, Lady Sherlock, about why women in particular are deferring, one of the main reasons is that women have a lower state pension age than men, although of course the reasons will vary with individual circumstances. I am loath to go too deeply into the simplicity argument because we will have a row which will go on for ever. However, to conflate complexity with the number of extra pages in a particular pamphlet is, bluntly, a somewhat bizarre argument. The difficulty for individuals is in making the decision on what option is best for them in the longer term and what is best for their surviving spouse.
Lord Freud
I must confess that I have not counted up the pages or gone through it in detail. I suspect that I have gone through it but I cannot remember it and have not done the counting job on pages that clearly I should have. I knew that I should not have said this. However, I am not going to back down and I will stay with my “bizarre” comment.
Baroness Hollis of Heigham
Is this evidence-based policy? The Minister has not read it but it is “bizarre”.
Lord Freud
My Lords, I am most grateful for having a superb staff, some of whom have not only read the document but written it, so I am confident in the statement that I have just made.
The removal of the lump sum is not because we do not trust people; in fact, it is quite the opposite. We believe that people can make savings decisions for themselves. If they can afford not to claim the state pension, they can choose to save it.
Let me go to the figures on pensioner capital. We do not recognise the figures quoted by the noble Baroness. The figures I can quote—which are not averages, which I know the noble Baroness would scorn—are that almost three-quarters of the pensioner population already have more than £5,000 in capital, and more than half of all pensioners have more than £12,500 in net wealth.
Baroness Hollis of Heigham
The Minister challenges my figures. Is that households or individual pensioners?
Lord Freud
I am not sure why that was the point precisely, but those are the figures I have. The proposed amendment would allow for regulations to introduce a lump-sum payment into the new scheme. That would bring costs forward and would undermine the cost neutrality of the single-tier package, as well as the simplification.
Bringing costs forward may sound like a technical concern, but the timing of expenditure is vital. Without making offsetting savings elsewhere in the single-tier package, Governments in the early years of single tier would be forced to divert more spending towards the state pension system than under the current scheme, which means more government borrowing for future generations to shoulder, or less to spend on today’s priorities. We simply do not believe it is right to make this trade-off to enhance the personal financial management options for a relatively small group of people who do not need to draw the income from their state pension and are therefore able to exercise their option to defer.
We understand that a one-off payment can help people build up capital, and the backdating option can provide flexibility in this respect. However, we question whether there is a widespread problem of low capital for those in retirement. Introducing a lump sum would require us to make alternative savings from elsewhere in the single-tier package, most likely by reducing coverage. We simply cannot agree to that, and so I urge the noble Baroness to withdraw her amendment.
Baroness Hollis of Heigham
My Lords, that was a very interesting reply. I only wish we were in Committee so we could show up more of the thinness of the Minister’s reply. For somebody who is so evidence-based—which is something I greatly respect about the Minister—he was dismissing it rather wildly out of hand.
The Minister pushed the argument that this is about cost and said that this removal played a key role in “containing expenditure”. That is very interesting. I had a discussion with his right honourable friend something like three weeks ago on precisely this point. He assured me most emphatically and vigorously—I am sure he would confirm the conversation, and there were witnesses—that this had nothing to do with cost but was only about simplicity. May I at least suggest that the Minister talks to his right honourable friend and agrees a common line on this? At the moment, one says it is all about cost and the other says it is nothing to do with cost but is all about simplicity. I suspect that the Minister in our House is probably correct about the cost argument, but that is not the position presented by the Minister responsible for pensions, who assured me emphatically to the contrary.
As to the point about simplicity, frankly, it is absurd. I checked my pages again. Pages 11 to 17 are a table showing the cost value of a lump sum compared with increments, and pages 26 to 29 are on taxing the lump sum. That makes 11 pages in total, and probably only three of those, on taxing the lump sum, would be regarded as any form of challenge beyond a reading age of seven and a quarter—so the Minister’s argument about simplicity is frankly absurd, patronising, condescending, lacking evidence and without any factual basis whatever. Frankly, we expect rather better from the Minister.
As for pensioner savings, as I suspected, the difference between us is that my figures are based on individuals, and I stand by them, and his figures are based on households, which does not help the argument very much. He seems to think that 64,000 people denied a lump sum is such a small number that we do not need to bother about them. It is three times the number of service spouses, if I remember correctly, that he is going to help through the military covenant, and no one said they were too small a number to bother about—yet the figure for a lump sum possibility which is three times larger is too trivial to be worth troubling ourselves with.
Frankly, I do not think the Minister believes a word of his argument. I think he does believe his argument about cost, but I do not think he believes anything else about it. He knows and understands that pensioners need savings. He knows that this may be a way for those who take this lump sum to exercise that choice. He knows that it is not difficult to understand. It could not be simpler. Do you want to take this two years’ worth of pension as a lump sum or do you want to add it on? If you are taking away the increment, that would be complicated to explain. A lump sum is the easier and simpler of the two options, and that is the one the Minister is taking away, to the pain of the individual who I calculate will reach their cross-over point—I asked the Minister for this figure, but it has never come to me—at about 87: I stand to be corrected if the Minister thinks I am wrong.
We are left with backdating—fine. All I can hope, and I am sure others do as well, is that we will keep up the pressure on Ministers to ensure that people are aware that they can take their pension lump sum in arrears, as a form of saving, after 12 months and get £7,500 or £8,000 for that sum, which will still keep them below any risk that other benefits, if they are necessary, including housing benefit, will be lost.
I am disappointed by the Minister’s reply, and I think that the Minister is disappointed by the Minister’s reply. He knows that it does not stand up to a scrap of scrutiny—not one scrap—but there is nothing much we are going to do about it at this time of night, so I beg leave to withdraw the amendment.
Pensions Bill
Baroness Hollis of Heigham Excerpts(11 years, 11 months ago)
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“Assessed income period: indefinite period
Notwithstanding sections 28 and 29 above, any recipient of pension credit may from the age of 75 years have his or her assessed income period set for an indefinite period.”
Baroness Hollis of Heigham
My Lords, pensioners usually have stable incomes, especially compared to those who work, and they do not fluctuate by much. At the moment, existing pensioners on pension credit have their income and thus their eligibility assessed every five years at 65, 70 and 75. Thereafter, no further means-testing is required, although people need to report the death of a spouse or when they move into residential care. The Government are proposing to replace this light-touch system with annual means-testing every year until death, with the modest exemption of those currently already over 75, for whom means-testing has been suspended. All future pensioners will have annual means-testing until they die, which means that they will means-test, for example, a frail, 90 year-old widow.
In Committee, we argued that we would retain the current system of five-year assessments of income for pension credit eligibility and the suspension of means-testing after 75, both of which the Minister wishes to replace with annual means-testing. The Minister was not sympathetic; he tried to suggest to my noble friend Lady Sherlock that the new system would be simpler, whereas on any ordinary understanding of the word it is becoming more complicated. Eventually, he fell back on the necessity of making these savings—all £65 million or so extracted from some of the poorest people in the country.
This amendment is modest and targeted. It would permit the Government to means-test pensioners annually, as they propose to do, until the recipient is aged 75, and from then on as now those means tests would be suspended. Why this proposal? My concerns are threefold. First, the proposed changes will discourage pensioners from claiming pension credit. Secondly, it is profoundly unfair. Thirdly, it is not worth the relatively small savings that may follow.
Baroness Hollis of Heigham
When the Minister says that there is no evidence, does that mean that he has sought evidence and there is not any, or does it mean that he simply does not know, or what? Has he evidence to prove that there is no deterrent effect? I suspect that the answer is no.
Lord Freud
Take-up of pension credit guarantee credit, which is aimed at the poorest pensioners, is already high at 82%. However, I think that it would be better if I offered to write to the noble Baroness on the exact nature of the evidence which I do or do not have. Actually, I do not need to write because I can tell her that her second supposition is correct. We do not have any evidence either way. With that covered, I ask her to withdraw the amendment.
Baroness Hollis of Heigham
My Lords, I am not going to pretend that I am not disappointed with the Minister’s reply. I thought that he showed a degree of sympathy and understanding in Committee, particularly of the plight of older pensioners in their late 70s or their 80s, or perhaps older still, who are getting increasingly frail and confused. I thought he understood that. That is why in this amendment I dropped the idea of periodic assessments and simply suggested that, while the Minister does what he thinks is appropriate or is required to do on this in terms of having annual means-testing until the age of 75, at least from 75 onwards he could abandon the annual means-testing system.
I really do not think that the Minister has addressed the issue. He said, first, that he thinks that the savings would be reduced by 30%. I suspect that that is a slightly arbitrary figure, arrived at by dividing the number of years and the percentage of savings, but it takes no account whatever of the fact that means-testing will already have excluded pensioners at an earlier stage. I suspect that at least half his savings will come from the fact that pensioners do not claim what they are entitled to, rather than them not getting what they otherwise would by having annual means-testing.
The Minister said that if those under 75 were annually means-tested but those over 75 were not, that would give rise to appeals and disputes. What evidence does he have for that? After all, we have had periodic means-testing since 2008. How many appeals have there been from people under the age of 75 against the “no further means-testing at 75” rule, and what has been the result of those appeals? I shall give way to the Minister. He ran that argument, so I presume that he has some statistics for us.
Lord Freud
I shall have to supply the statistics separately and will do so in writing.
Baroness Hollis of Heigham
My Lords, forgive me, but trying to persuade the House that this would generate appeals and disputes and not presenting to noble Lords what is already a firm basis of evidence from the existing situation does not seem acceptable. I rather doubt that the Minister has more than a couple of handfuls of cases but we will see when he digs out his statistics. I just do not think that it is a valid argument and I have not had a shred of evidence from him or the Box to support it, although I have plenty of anecdotal evidence to the contrary.
However, my deepest concern—and it is one that I do not think the Minister has addressed—is just how profoundly unfair this is. I am baffled that he does not seem to accept that argument. He is quite deliberately building means-testing out of the new state pension, and I welcome that wholeheartedly. However, every reason he adduces for building it out of the new state pension applies equally for not continuing to means test after 75. Every argument that supports the new state pension works to support the amendment and not continuing means-testing after 75. If means-testing is so innocent, why get rid of it in the new state pension? The Minister knows, as we all know, on the basis of good and effective DWP research, that means-testing is loathed by pensioners and they do not take up the benefits they are entitled to. That is what the Minister is counting on for his savings and it is profoundly unfair.
Pensioners slightly younger are built out of means-testing because the whole lot of pension credit has been thrown out of their new state pension. One day older and they are not only going to be means-tested but means-tested annually until the day they die, until they are 90. That is shameful. The Minister is widening the gap between younger pensioners, who will be much better off and with no means-testing, and the pensioners who will be staying with the old system, who are already older and poorer and who will have a lower pension and face means-testing. He is widening the disparity rather than narrowing it.
That is not good enough. It is not decent. The Minister is profoundly wrong on this but, given the lateness of the hour, obviously I will not seek the opinion of the House at this time of night. I will withdraw the amendment but with a heavy heart because it is profoundly wrong to widen the gap between older and younger pensioners at a time when we are trying to build means-testing out of the system and the Minister is reinforcing it back in again. I beg leave to withdraw the amendment.
Housing: Underoccupancy Charge
Baroness Hollis of Heigham Excerpts(12 years ago)
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Baroness Hollis of Heigham
To ask Her Majesty’s Government what assessment they have made of the effect of the underoccupancy charge on tenants.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
Both an impact and a quality impact assessment have already been published, although it remains too early to say how people are reacting to this change. We have commissioned a consortium to undertake a two-year monitoring of the effects of the policy. The research will include looking at the effects of the measures on supply issues, the impact on rural areas and the effects on financial circumstances and vulnerable individuals.
Baroness Hollis of Heigham (Lab)
My Lords, I thank the Minister. Social security sanctions claimants and cuts their benefits if they break the rules, say on JSA, in order to change their behaviour. But the 660,000 families affected, whose existing housing benefit is being cut by the bedroom tax, cannot change their behaviour because there is nowhere smaller for most of them to go. Two-thirds of them are, in any case, disabled, and may need the extra space. Discretionary housing payments, on which the Minister properly relies, can help only a minority even of disabled people. Does the Minister really think it fair to sanction existing tenants for misbehaviour when they have not misbehaved and when they cannot change their behaviour? Are we not punishing people who have done no wrong but who, as they face eviction, are having wrong done to them? Is that now social security’s definition of social security?
Housing: Underoccupancy Charge
Baroness Hollis of Heigham Excerpts(12 years ago)
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Lord Freud
Clearly, one thing about this policy is that it makes properties that are underoccupied available for people who are overcrowded. According to the English housing survey, the figure for overcrowding is about a quarter of a million. Under the 2011 census, the figure was higher, going up to a third of a million—361,000.
Baroness Hollis of Heigham (Lab)
My Lords, overcrowding is essentially a London problem, but the local authorities most affected are not London authorities; they are in places such as the north. I am sure that the Minister respects the facts on that and will share his information with the House. Does he agree that the problem that local authorities and housing associations face is that there is an absolute shortage of small accommodation to which people can move? Does he therefore agree that it would only be fair, right and decent if people were sanctioned by the bedroom tax only if they refused an acceptable alternative offer of smaller accommodation?
Lord Freud
My Lords, less than half the overcrowding takes place in London. More than 30% of properties are actually one-bedroom and 108,000 have come up. We are adapting to the transition by using the discretionary housing payment system. The recent data on discretionary housing payments show that that is exactly how local authorities are using that money.
Pensions Bill
Baroness Hollis of Heigham Excerpts(12 years ago)
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Lord Bates
My Lords, this Government recognise the importance of supporting individuals in making decisions about their retirement income choices. These choices can be bewildering and the implications of choosing an unsuitable product can be devastating, as the noble Lord has very clearly set out for us in moving this amendment. That is why the Government continue to lead on and to support a whole range of initiatives aimed at driving up standards among providers, providing guidance to trustees and education to members. As well as the ABI code of conduct, we welcome the new Pensions Regulator guidance setting out expectations for what trustees should provide for their members. In addition, the Money Advice Service is further developing its support for those approaching retirement to help them engage with how their personal situation relates to products and services which might be appropriate to their needs.
However, we need to understand whether this activity is making a significant difference in terms of value to the consumer. The Government will therefore be assessing the ABI evaluation of the code of conduct planned for later this year, and the Pensions Regulator will be assessing the impact of the new guidance this summer. We will also be looking at other indicators to assess the extent of change in the market.
Wider regulatory activity includes the Financial Conduct Authority’s thematic review of annuities and consideration of a market study. The review will assess the extent of detriment to consumers of not shopping around—the numbers presented this afternoon have been quite startling and stark—and will consider other indicators of risk, such as insurers’ retention rates and whether profits in the market are high or unreasonably high. The FCA will report later this quarter. In addition, Her Majesty’s Treasury and the Department for Work and Pensions are currently reviewing the broad range of available research and statistics on decumulation to explore the impacts and interactions between market and consumer behaviour and government policy.
Our concern about the noble Lord’s amendment is that, while rightly highlighting a key issue, it would increase the risks for consumers and place additional burdens on employers. I will deal first with the risk for consumers. By sending all members to an annuity broker, we would effectively be pushing them away from regulated advice routes, as brokers, unless they are also FCA-regulated advisers, are not required to ensure that the product is suitable for the consumer. At this point, it is worth saying that the range of options available to somebody facing retirement are bewildering but are also many: there is not just the open market option but whether they should be retiring at all or whether they should be using the flexibility that is available, whether they should be drawing down on a pension pot rather than actually purchasing a new version of it, and what type of annuity—
Baroness Hollis of Heigham (Lab)
That is very helpful from the Minister but, if he is going to do that, he is going to have to look at the artificially high base of alternative income—the £20,000 a year you have to have before you are allowed to enter into these arrangements, which was based on not being a charge to public funds but which is unreasonably high. I fully support the Minister’s argument but it follows that he must actually look at his minimum alternative income requirement.
Lord Bates
Those points about alternative income requirement are correct but there are a number of reasons, not just those, as to why annuity rates are historically low, to do with interest rate levels.
Baroness Hollis of Heigham
The Minister may not have understood my point. He was, quite sensibly, making the point—I entirely agree with it—that people should be able to consider alternatives to annuity arrangements, such as draw-down and the like. All I am saying is that to do that, and not to have to cash in, you have to have, under Treasury rules, a minimum of £20,000 in alternative regular income. That is on the grounds that you need to protect people against falling into a charge on public funds if they exhaust their private savings. That figure seems to be artificially high and the Minister will need to look at that again.
Lord Bates
Okay, I have the right answer now: £20,000 is needed for flexible draw-down but not for capped draw-down or trivial commutation of benefits. There are different elements of it. My point, from which I have probably strayed into a trap—I should have stuck to the script—was that there is a range of choices, not simply the annuity rate which people face. That is why it is vital that all members engage early. That is the reason for the wake-up programme which is now being organised, to encourage people to engage with what they should be considering later on.
Also, making brokers the first port of call for all would create a captive market for one part of the industry, without effectively adding to consumer protections. Another risk to consumers is that they could fail to engage with options other than annuities that are more appropriate to them.
The noble Lord’s amendment suggests that a brokerage service would have to provide information on alternative at-retirement services, but it has to be recognised that brokers are not impartial. They make their money if the member buys an annuity, but not if they choose to draw down or defer, or to commute. While it is right that schemes should play a central role in informing consumers of their options, we would be wary of making this part of the qualifying criteria for automatic enrolment. The duty to enrol into a qualifying scheme does, of course, fall on the employer, and so to require them to take this step would be an unwelcome, additional burden.
I make it clear that we are committed to ensuring that consumers have the information they need to make good choices and that the annuities market works effectively for consumers and so, in this respect, we welcome the debate. The noble Lord, Lord Browne, has perhaps chided my honourable friend Steve Webb for raising this matter on annuities but, in many ways, he was doing just what the noble Lord is doing: saying that this is an area which needs to be discussed and debated. In many ways, this debate enables us to do that, but so do the reviews which are taking place and to which I have alluded in my response. I trust that, as part of that, the noble Lord will feel able to withdraw his amendment.
The Lord Bishop of Chester
My Lords, briefly, I listened to the Minister with great interest. I regard the amendment as important because, in a sense, the proof of the pudding is in the eating; it is when you are taking the benefits of the saving.
The Minister’s reply, it seems to me, says that in addition to all the complexities which the noble Lord, Lord Browne, set out, there is actually a whole load of other complexities about whether you should be having an annuity at all. My question is simply as follows. Until now, when we have often had final-salary schemes around, these decisions have been largely managed. However, we are increasingly moving into a position where most people will be on money-purchase schemes, and this will become normal; we will have to engage with these issues. Given the complexities which the Minister has so helpfully set out, is the Government’s view that the obligation to work this out is on the consumer—the person taking the pension—with some information provided somewhere, or is the obligation on the pension provider to provide information which covers all these options? Where does the responsibility primarily lie to advise the person at the point of retirement? I thought it was not quite clear enough as to where that lies in what the Minister said.
Baroness Hollis of Heigham
I will ask another question associated directly with that. To what extent does the Minister expect the Money Advice Service to take on some of this responsibility, given the slightly bumpy ride it has had so far? Or do the Government—and here I declare an interest—expect an organisation like the Pensions Advisory Service to take on some of this responsibility? It has to be free, independent, impartial and professional. Those are the only two organisations of which I am aware which might fit that role at the moment.
Lord Bates
I am grateful for the interventions of the right reverend Prelate and the noble Baroness. The Money Advice Service and the Pensions Advisory Service are, of course, important. However, the argument we are having at present is about saying that individuals need to focus on this issue. It is their responsibility. It is vital to them. That is what the debates about transfers and auto-enrolment are trying to do.
However, we are wary of putting the responsibility for providing information to members solely in the hands of annuity brokers. It is better to drive up standards by ensuring that all the players in the annuity market—providers, schemes, trustees and consumers—are engaged. That is why the Government have led in support of a number of different initiatives to address this important issue and will continue to challenge the industry if there is no significant improvement.
Baroness Hollis of Heigham
I support my noble friend, as that is precisely my recollection too. During a series of meetings with the organisations, the temporary cap came up because of the fear among pension providers that they would lose significant sums of money they had under management and the associated fees. The sole reason for doing it at the time was to get consensus to get it off the ground. Distraction was not a word that was ever uttered, and I must have been in about three years’ worth of those negotiations.
Lord Bates
These recollections will be there. I take it that it was in the mind of the Government that NEST had a huge task to focus on in actually attracting people who had never saved for their retirement before to start saving. That was a major responsibility, and issues were debated around that time relating to the effect that NEST’s creation would have on the market. Certain things were considered. It would be wrong to say that it was the only thing that was considered in terms of restrictions and the need to focus, but it was certainly one of the things which should have been focused on.
Baroness Hollis of Heigham
Does the Minister have any evidence that NEST—its chair, chief executive or board members—wanted this limit?
Lord Bates
I do not have any information to hand on that. However, we have got the point that I was perhaps overegging this by saying it was the only thing, and I need to recognise that other factors were perhaps considered when it came to putting this restriction in place. There was no sinister purpose, it was simply to say that there was a huge task to be undertaken and to ensure that NEST’s systems and operations could actually handle this. We do not want to put excessive burdens on NEST so that it fails when so many are dependent on its success.
Housing: Underoccupancy Charge
Baroness Hollis of Heigham Excerpts(12 years ago)
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Baroness Hollis of Heigham
To ask Her Majesty’s Government what plans they have to revise their underoccupancy charge so that, as in the private rented sector from 2008, it applies only to new tenants.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
My Lords, as restrictions on entitlement to housing benefit based on accommodation size have been in place in the private rented sector since 1989, the local housing allowance introduced in April 2008 could be phased in. We have no plans to make similar arrangements for the removal of the spare room subsidy, which has already been applied, as it delivers a consistent approach to the treatment of housing benefit claimants across both the private and social rented sectors.
Baroness Hollis of Heigham (Lab)
My Lords, the sectors are very different. The private rented sector seeks to make profit out of people’s housing benefit. That does not apply to social housing. Social tenants hit by the bedroom tax, through no fault of their own, are now trapped. They are unable to move to smaller social housing as it does not exist. They are unable to move to private housing because private landlords are rejecting or evicting them. They are unable to get discretionary housing payments because most are refused. Debts are mounting and lives are being destroyed. Will the Government please at least apply the bedroom tax only to new tenants who can cope with the new rules, as in 2008, perhaps over a transitional period until we have enough new housing to meet housing need?
Lord Freud
My Lords, the number of transfers into one-bedroom social rented accommodation in the past year is running at 108,000. There are more people in the private rented sector, not fewer, and DHPs are—if anything—underspent. Our indications are that they will be underspent. I am pleased to say that in Norwich, with which I know the noble Baroness is very closely associated, the spend was a little higher: £166,000 in the six months, against the allocation of £288,000. I am puzzled that Norwich has not put in a bid for additional funding. I urge it to do so because it has until 3 February to do it.
Pensions Bill
Baroness Hollis of Heigham Excerpts(12 years, 1 month ago)
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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
My Lords, the purpose of this clause is to provide for the abolition of the assessed income period in pension credit cases from April 2016. I will just add that I was most welcoming of the reinforcements I had temporarily.
The assessed income period removes the requirement for certain people to notify the department of changes to their retirement provision for a defined period. The assumption when the assessed income periods were introduced in 2003 was that pensioners were more likely to have relatively stable incomes and capital, so a lighter touch to reviews was therefore considered appropriate as a way to minimise intrusion and ease the administrative process.
The logic behind the policy is clear, but operating the system over the past 10 years has shown the reality to be somewhat different. The operation of assessed income periods has proved to be more complex and intrusive for both staff and the individual than anticipated. For example, people can report a change during an AIP and, as a result, their award can be increased. However, because we have to look again at all of their retirement provision, not just the reported change itself, it does not always lead to a change in the award. This is nugatory work for the Pension Service and is confusing for recipients.
More importantly, our assumptions about the stability of pensioners’ incomes and capital have not stood the test of time. Our analysis shows that circumstances change and fixing retirement provision for such a long period leads to inaccuracies in benefit awards, which then remain in the system for some time. Based on a sample of around 100,000 cases that have been reviewed, the pension credit award required updating in 54% of them, and in 36% of cases the award was reduced.
In the current economic climate, we believe it is right that benefit awards reflect the individual’s current financial circumstances. We therefore propose to abolish assessed income periods by removing them for new claimants and phasing out existing fixed-term ones from April 2016. It is estimated that this measure will result in steady-state savings in AME of around £80 million per year in the long term. We recognise that removing assessed income periods will require pension credit recipients to report relevant changes when they occur—however, this will not necessarily result in increased levels of contact for all recipients.
We will be working with stakeholders and partners on communications products to ensure that people are clear about what this change means and what they will need to report and when. For example, there will be no need to report changes in capital provided it remains below £10,000. Currently, only 12% of recipients—around 290,000—have capital above that level. Above £10,000, changes are only relevant where they cross £500 bands. Annual increases in pensions will be taken into account automatically, as now, so only new income streams will need to be reported. It is also worth remembering that the impact of reporting changes will depend on individual circumstances and that not all will lose out. Some may see an increase in their award, while some may not experience any change at all.
Pension credit is a safety-net benefit designed to help the poorest pensioners, and as such it is right that it takes account of the income and capital people have access to. Through the abolition of the assessed income period, we will ensure that pension credit awards are accurate and that, in future, our limited resources are spent on those who require the most support. I beg to move that Clause 27 stand part of the Bill.
Baroness Hollis of Heigham (Lab)
My Lords, I thank the Minister for his explanation of this clause. I would like to explain why I and my noble friend Lord McKenzie have raised this on the stand part debate so we can discuss the issues. As the Minister said, this clause proposes to abolish the current assessed income periods for pensioners claiming pension credit. At the moment, pensioners are means-tested for pension credit at their retirement at 65; then at 70; then again at 75 and not thereafter. I am genuinely surprised and, actually, disappointed that the Government want to make a quick saving of £82 million gross—as the Minister said—or some £60 million-odd or £65 million or so net by introducing annual means testing, although excepting current pensioners over 75 who may be in receipt. It will affect 1 million pensioners a year up to 2020.
Why do we have the current rules? My noble friend Lord McKenzie was instrumental in further enlarging and developing them in 2008. Very wise he was, and very good they were—of course. I hope Hansard records the “Hear, hears” to that. In particular, he introduced the indefinite assessed income period for no means-testing for those reaching 75. In my mind, that was a most important consideration, the one I am most concerned about. Essentially, we know that pensioners loathe means-testing so much that—either through ignorance or stigma—a third do not now claim that to which they are entitled. Those eligible non-recipients are missing out on something like a mean average of £34 a week. That is an average loss of £34 a week, an income that would transform their circumstances.
More means-testing, which is what the Government are proposing, will not, given this strategy, bring more pensioners in, but will deter even more pensioners from claiming what they should. That is why I am so pleased that we are extracting means-testing out of the new state pension, as the former Pensions Commission recommended when considering the old pension. I was pleased that we were removing it from the new state pension, only to find that the Government are foolishly importing it back in again and extending it through annual means tests, rather than five-yearly ones, in pension credit to make a quick buck. Therefore, those who get the more generous pension in future will escape the means test; the older, poorer pensioners—mainly women—will be subject to even more of it. I think that is wrong.
Why was means-testing for pensioners under my noble friend Lord McKenzie carried out with a light touch? It was essentially because pensioners’ income is pretty well stable in their retirement years. The three major events which are likely to affect their entitlement are, first, the death of their spouse. When he dies—and it is, alas, usually “him” ahead of “her”—his modest pension, if it is a single-life pension which two-thirds of them are, dies with him. That is why it is elderly widows who most need pension credit. The second major event is that they may, rarely, get a small legacy—say, from the death of an unmarried sibling. The third is that they may have to move into residential care.
Such big events should be reported, and I have no objection to reinforcing that and making it clear that capital from, say, a generous legacy of more than £10,000 or £15,000, acquired before 75, should be reported. I do not have a problem with that. Apart from that, a five-year check will discover not just whether pensioners are getting too much, which is rare, but sometimes whether they are getting too little. I do not think we have recently had much in the way of a take-up campaign—funny, that.
Now the Government are going to produce annual means tests, and the Bill team—I thank it for this—very helpfully sent me the best statistics we currently have, which show that twice as many people will lose under annual means-testing as will gain. The Government will not make their savings primarily because people are receiving too much, although some money may come from that and will be clawed back, and so on. No, if the Minister will actually make a saving, it will come from pensioners who should get it not claiming, and certainly not annually. The department has a lot of literature, which is entirely decent, about the problems of the means-testing, which informed the new state pension. It was absolutely right to do so, and yet it seems to be ignoring it in its efforts to make a quick £65 million or so saving from the poorest pensioners.
The Minister and his team will so increase the stigma of means-tested pension credit—with people annually reminded that they are suspected of error, if not downright fraud—that more of the poorest pensioners will slip down the snake of further poverty. Pensioners do not cheat on pension credit, but this proposal suggests that they do. Let us not have any spin about increased take-up as a result. This is about savings and nothing more, and I do not think it is decent.
The Government boast of their reduction in means-testing for the new state pension, while quietly importing a massive extension of means-testing for those not joining the sunny uplands of the full new state pension. They are deliberately widening the gap between those who will get the new pension, and those who cannot on grounds of age. Poorer pensioners will be worse off simply because they are a day older or a year older than other pensioners who are eligible for the new state pension.
Single people who are on pension credit because they are on the wrong side of that cliff edge will have £30 of pension credit added to their BSP of £111, giving them a total income of some £140. However, if they acquire any capital savings over £10,000, they will find them means-tested. In some cases they will then lose every penny of pension credit. Meanwhile, other pensioners, who are a day or a year younger, will get their more generous pension of £144, and will also keep every penny of savings they may have or acquire because we rightly float them off pension credit, and all credit to the Government for that.
The older and poorer start to lose if they have any savings over £10,000, so there is not an incentive to save. Yet pensioners a day younger not only have a higher pension, but their savings are not taken into account at all. This problem will of course be made worse by the loss of savings credit. Is this fair? Far from increasing means-testing for the poorest group, in my view the Government should do exactly the opposite. They should reduce means-testing to achieve greater fairness for pensioners who are being penalised for nothing but their age. That would give less of a cliff edge, and more equity between the two groups of pensioners who are divided by one day. It really is shameful to import an unnecessary cliff edge for trivial government savings, and it is also perverse.
Since my noble friend Lord McKenzie wisely reviewed AIPs, there have been huge cuts in domiciliary support for the elderly from social services. Mr Pickles has cut local government budgets by 35%, and inevitably this is passed on in depleted services. Nearly half a million people, mostly pensioners, have lost homecare since 2008—half a million. Only those with substantial or even critical care needs can now expect to have carers who are funded by the local authority.
Pensioners with only “functional” disability may have quite significant mobility or sight problems, and five years ago they could have received perhaps three or five hours per week of help from social services. They now get nothing, and their family may live 100 miles away. If someone’s needs are more substantial and they are frail, and they need help getting up in the morning and at night, the two hours a day which was offered may now come down to two slots of 15 minutes. On top of this has come Dilnot.
The Government’s response has been to emphasise co-payment. I do not disagree with that, but where is the money for that co-payment to come from? If you are a pensioner on pension credit, you have minimal or low savings and your only asset is your home. Outside London this may be worth perhaps £100,000 or double that. Some 80% of pensioners below 60% of median income are owner-occupiers. Half of those on pension credit are owner-occupiers. Equally, three-quarters of those who should claim pension credit—but do not and so lose out on £34 per week—are owner-occupiers.
Pensioners may have to contribute to the cost of their social care, or decide—rightly, in my view—that they wish to live independently outside of residential care, with more domiciliary support than social services can now provide. However, those on pension credit, having been means-tested at 65 and again at 70 and now coming up to 75, have only one way to do that, which is to release some of the equity in their home.
Lord Freud
My Lords, I shall deal with the equity release issue first. Assessed income periods were never intended to enable people to shield their income and capital from interaction with the means-tested system. Pension credit is a safety net benefit providing support for daily living needs for the poorest and, as such, should be a last resort.
Baroness Hollis of Heigham
I am sorry to interrupt, but I am not sure that that is the case. Certainly equity release providers had discussions with the department, to my certain knowledge, and were told that somebody could acquire capital through equity release between, say, 65 and 70, and that if it was then spent down—that is, it was used for reroofing, or a new boiler, or insulation, or whatever—the department was entirely content with that.
Lord Freud
Yes, I shall come to that. In practice, that is absolutely the case. Money taken for essential repairs is disregarded. I can confirm what the noble Baroness is saying.
To go back to the argument, people should draw on the income and capital available to them before seeking help from the state. If people liquidise assets to release money or generate an income, that should be taken into account, no matter what the source—if they sell some shares, release equity or downsize. It has been suggested that abolishing the assessed income period will deter people from using equity release to pay for care under the new care funding regime proposed by the Government. The planned care charging reforms will provide greater clarity about what people will be expected to contribute. There will be financial advice to help people better meet these costs, and the Department of Health has been working with the financial services industry to help create the right conditions for a new market of financial products to develop that will be suited to this purpose. Equity release may be a product some may consider, but at this stage it is difficult to say how future care charging reforms will influence behaviour in this area.
The Government do not want people to be penalised for making proper provision to fund their care. That is why the Department of Health will consider how the charging system can recognise the provision people have made and why we are working with them to understand the impacts and the potential interactions with means-tested benefits. However, we cannot retain a complex feature of pension credit as a way of protecting the position for what may be a minority of pension credit customers in specific circumstances. This would not be a targeted response; indeed, it could be argued that it moves away from and undermines the rationale of a safety net benefit.
There may be alternative solutions that both departments will need to consider in due course to avoid penalising those who have made provision to pay for care, but keeping the assessed income period is not the answer. I can confirm what the noble Baroness, Lady Hollis, said—that officials have spoken with the Equity Release Council and have agreed to meet with them in due course to talk through the implications of this measure. The council, in terms of the information base, has been careful about providing advice to those on pension credit about the potential impact on their benefit and designed products so that they do not breach the £10,000 disregard.
Baroness Hollis of Heigham
Except, my Lords, in referring to the brief to this extent, that usually the minimum sum from any equity release providers, from looking at the Aviva statistics and retirement statistics, is usually £10,000, at which point any moneys above that are netted off pension credit.
Lord Freud
Once these things are put in place with the social care provisions, there may be ways of dealing with that, but it is premature to address it until we have the shape of those social care provisions. As I said, the way to do that is not necessarily through a wholesale change to our AIP strategy.
Baroness Hollis of Heigham
As this is not an amendment, I do not have a formal right of reply to withdraw an amendment. Before the Minister sits down, therefore, could I press him on this? Why did he—rightly in my view—support his right honourable friend’s position in the other place, which was based on the recommendations of the Pensions Commission, to get rid of pension credit in the new single pension and therefore to reduce means-testing very significantly? Pension credit served its purpose in taking existing pensioners out of poverty. It possibly deterred other, future pensioners from saving, but it did tackle the problem of poverty. Quite rightly, in my view, the current Government have proceeded to take that chunk—a huge chunk of means-testing—out of the system. Why, then, does the Minister think it right to reintroduce it for some people who are simply a day too old?
Lord Freud
My Lords, I think there is a distinction to be made here, which the Government are making. You can reduce the level of means-testing by providing a higher single-tier pension, while still making sure that where you are providing people with a means-tested benefit, it is accurate, in order that the Government do not spend more money than they need to at a very tight time.
Baroness Hollis of Heigham
But the Government are giving the equivalent of a whole pension credit to everyone who draws their pension after 5 April 2016, so the Minister is not worried about a safety net then, or spending money that is not necessary—he is just doing it. Everybody will get the equivalent of a full pension credit if they fall the right side of the line. If they fall the wrong side of that line, it will be means-tested annually. What is the decency behind that?
Lord Freud
As the noble Baroness is fully aware, the dividing line is actually much more spread given the complicated transitional arrangements between one system and another. There is not the sharpness of a dividing line—I know the noble Baroness is fully aware of that because we have debated it in great detail. I am conscious that we are pressed for time.
“which for a widowed parent shall not be less than three years, or until the youngest child of that person at the time of the death had reached the age of 7 years, whichever is the longer period”
Baroness Hollis of Heigham
My Lords, we move on to a different section of the Bill on bereavement benefits. In moving Amendment 59, I wish to speak also to Amendments 60, 61 and, very briefly, to Amendment 66.
I am unhappy about some aspects of these proposals. I know that they have been out to consultation, as, obviously, I have read the consultation documents, but I wonder whether it was wise to go for a one-size-fits-all approach in the name of alleged simplicity. The background notes go back to our policies in 1925, presumably in the belief that this shows we need to overhaul the system, but, actually, we did review and restructure it in 2000. Why did we structure it in the way we did? I hope that noble Lords will forgive me if I talk about widows rather than deceased spouses or partners.
Currently, widows receive a £2,000 lump sum. We recognised, as have the current Government, that you need money immediately to pay for funeral costs and to tide you over the couple of months while the deceased spouse’s income or, alternatively, childcare are not available and before alternative benefit income, if appropriate, is established. As UC, for example, can be paid in monthly arrears, it could be two months before any money is flowing to the bereaved spouse or partner, so we produced a lump sum. We then sought to support widowed parents with children while the youngest was on child benefit: that is, normally up to age 16. At the time that was consistent with the income support rule for single parents with a taxable benefit. The widowed parent’s allowance is now worth £108 a week—a little less than BSP but more than income support, as it is NI-based. It is not means-tested and no work conditionality is attached. The number of new widowed parents claiming the allowance varies between 50,000 and 100,000 a year. As far as I can see, there is no particular pattern to it. Currently, widowed parents claim their allowance on average for five to six years. Not surprisingly, those with younger children claim it for longer—around nine to 10 years. Only 3.6%—less than 4%—claim it for a year or less.
The Government, to my dismay, while increasing the lump sum to £5,000, are proposing that widowed parents should receive this financial support not until the youngest child is 16 or even 12, but for one year only irrespective of the age of the child, at £400 a month. I believe that this is quite unacceptable. For most, the financial loss will be substantial. Some 88% of widows in work with children will be worse off; 50% of those not in work will be worse off. To put it another way, any widow with children who would have claimed for two years or more, usually because of the age of their children, will in future be worse off. That loss could be £50,000 if eligibility were retained while the child carried child benefit. Instead, within a year, she will probably have to work longer hours if she is in work just to make good her financial loss at the selfsame time that her children need her. Children do not adjust in a year. In my experience they are stressed and distressed for many years longer and need more, not less, care from the surviving parent. My children were grown up when bereavement hit and even then it was very hard, but friends who lost a spouse when the children were young found that their children had nightmares and returned to bedwetting. Those parents experienced broken nights and witnessed their children’s clinging fear of losing their other parent, school phobia, challenging behaviour, miscellaneous, unexplained small illnesses and symptoms of depression. They found that their children needed much extra support, stability and attention as well as affection. The widowed parent—a sole carer and earner—may have to extend her working hours to make good the loss of income at just the time when she needs to be more available to them, perhaps to change childcare, move house and, consequently, change their school.
The more generous working parent’s allowance not only helped to replace his income but could also allow a working mother the financial flexibility to adjust her hours to care for her children to enable them to settle into the new patterns of life that they now experience. Given that few widows claim the full credit that they could, they are making a wise decision for themselves and are in no sense seeking to milk the system. Are we really so desperate for money that we need to take it away from grieving widows with deeply distressed children?
As for work conditionality, if widowed parents are on UC, it is proposed that they are brought within work conditionality after six months. Again, that is quite unacceptable. I am baffled by this lack of empathy or understanding. Of course, if she wants to go back to work—as many of us do, and did—that is fine and we should support her but to impose work conditionality whether she feels ready for work or not seems unbelievably harsh. We talk about advice and guidance and a friendly interview with Jobcentre Plus staff, but the power lies with the staff. The Minister is giving huge discretion to a young single member of staff, however well intentioned—I am sure that they are—but with probably no personal experience of bereavement.
I would not want that. The more, I am afraid, we hear of the culture of targets at Jobcentre Plus, the retraining or demotion of staff who do not meet their targets, and the resulting heavy pressure on claimants who are still numb and barely functioning to go back to work, the more we should all worry. I appreciate and welcome the fact that the Minister has recently offered further consultation to discuss work conditionality and the training of staff with the voluntary groups who support widowed mothers, and I hope that work conditionality pressures, at least, will be properly relaxed.
Lord Freud
My Lords, I start by thanking noble Lords for their thoughtful speeches. I know that they have been considering these issues very carefully and I appreciate and take on board the sentiments that have been expressed. Bereavement benefit forms an important part of state support. Reforms have been made over the years, but they have tended to have been in response to particular pressures, and until now no one has really considered how this benefit fits in with wider changes in society and, indeed, within a new structure of benefits. By not addressing the radical social and demographic changes that we have seen or accounting for the far-reaching changes to the welfare system, the benefit is out of date, difficult to administer and hard to understand. Radical reform is necessary to make it more effective for this century.
Baroness Hollis of Heigham
This benefit was introduced or revised after quite a lot of work and research in 2000. In what ways is it out of date? I can understand that the Minister may wish to make savings, but his proposals are cost-neutral. So, apart from the fact that funeral costs have gone up, and therefore there is a need for a larger lump sum, in what way is it out of date?
Lord Freud
The history is where it is thought that a partner is a dependent rather than an independent agent—and that is a fundamental change in our demography, and something that I know the noble Baroness welcomes, with the rise of women’s equality. It is one of the biggest structural changes that we have seen since the war.
Baroness Hollis of Heigham
I entirely agree with the Minister, but it is my belief that since 2000 the percentage of people in work, particularly mothers with young children, has changed by only three or four percentage points.
Lord Freud
I do not think that I want to get into a debate with the noble Baroness on whether the reforms that she was responsible for and those that I am responsible for are better. Let me try not to do it in that context. I shall describe what these reforms are doing.
The design is for the bereavement and support payment to be a significantly simpler benefit and to provide specific financial support at a time when it is needed most without affecting access to further support through other parts of the welfare system. The evidence from independent social research and our public consultation exercise found that the financial impact of spousal bereavement is particularly acute in the first months. Bereavement support payment is designed to provide a significant cash boost for people in these early months, with a lump sum followed by 12 monthly instalments. We recognise that those with dependent children need a greater level of support, so the Bill provides the ability to set out a higher amount in regulations, which is what we intend to do.
Amendment 61 is intended to allow us to pay a higher amount to those who have been caring for their spouse or civil partner prior to bereavement. Caring responsibilities at the end of life can be particularly difficult and distressing and we recognise this by continuing the payment of carer’s allowance for up to eight weeks after the death of the person being cared for. Under the new system, this will be paid in addition to bereavement support payment as opposed to being taken into account in widow’s parent’s allowance and bereavement allowance.
The Bill does not preclude us from specifying a higher rate in regulations for people who meet certain conditions. However, making receipt of or eligibility for carer’s allowance or carer’s credit a condition is neither targeted nor fair. It would be particularly difficult to prove that someone would have been eligible for carer’s allowance, or would have met any other such conditions, after their spouse had died. Moreover, while we are spending more money on bereavement benefits over the first few years of reform, clearly we are in no position to significantly increase benefit expenditure. Money for increased payments to certain groups would have to be taken from elsewhere in the bereavement benefit budget, either resulting in lower payments for those without dependants or lower payments for all.
On the duration of payment, the 12 monthly instalments are not intended to equate to the period of an individual’s grief, nor are they intended to provide ongoing income replacement; rather, they seek with an initial lump sum to provide support when it is needed most.
To pick up on the points from the noble Baroness, Lady Hollis, on the overall effect, the DWP ad hoc report shows that overall, 52% of recipients are better off under the reform and that 62% of those out of work, who are typically poorer people, are better off, while 100% of those who currently receive the least, the BPT group, who get the lump sum of £2,000 but no regular payment, are better off after the policy change. On average, out-of-work parents in the poorest 25% notionally gain for 12 years. Out-of-work parents in the next poorest income quartile notionally gain for up to eight years. On average, out-of-work childless people in the bottom 50% of the income range notionally gain irrespective of age. In-work childless people in the poorest 25% notionally gain, regardless of age. In the structure I am describing, bereavement support payment must be taken in the context of the provision of universal credit, which is efficiently directed at helping the poorest people.
Baroness Hollis of Heigham
Perhaps the Minister could help me. He is arguing that this is an improvement and an increase in generosity in work conditionality, but he is comparing what would be the case if someone did not get this payment under the new universal credit regime. At the moment there is no such requirement, if the income that has been provided is adequate for someone to live on. As I understand it, work conditionality therefore does not apply. If I have misunderstood, I am very happy for the Minister to correct me, but I think that he is making the comparison that we did not make, and he is therefore answering a different comparison.
Lord Freud
Clearly, if people can live on the current bereavement payments alone, no conditionality is implied. That is the difference between the systems. Under universal credit if people are reliant on universal credit, work conditionality will be implied.
Baroness Hollis of Heigham
In other words, at the moment someone could get a full widow’s benefit under this, together with tax credits, housing benefit and so forth, and they would be free from work conditionality. In the future, I absolutely accept that there will be a different regime, but the point is that at the moment the Minister is making a comparison with the position of people who are not bereaved enjoying universal credit compared with those who will be bereaved under universal credit. I am concerned, as are many other noble Lords, with the position of those who are currently free and exempt from work conditionality with additional incomes coming through tax credits, housing benefit and the like, which therefore give them a higher or sufficient income which does not attract to it work conditionality.
Lord Freud
The noble Baroness is looking at a pretty narrow group where people are taking general bereavement benefits plus an income from work at over 16 hours to get the tax credits, which do not contain conditionality. Yes, there is a different system, but that is what the noble Baroness is describing in that particular example.
There are types of tailored work search requirements. There are no work-related requirements at all for the lead carer of a child who is under the age of one. There would be some work-focused interviews when the child is older, and noble Lords will be familiar with these. The work-related requirements can be limited in cases where the claimant has childcare responsibilities or has a physical or mental impairment. This is a flexible approach to conditionality, allowing it to be tailored to the individual, which ensures that all claimants receive the right support.
I am absolutely committed to making sure that parents who have suffered a bereavement receive an appropriate conditionality regime, so I have asked the Childhood Bereavement Network to advise us on how we should develop this guidance. Of course, the point about this, as noble Lords have made clear, is that we are talking about the married bereaved. Lots of other people suffer equivalently who are not eligible for bereavement benefit, and I know that there is some pressure to widen it. This conditionality regime could have wide benefits and I would be prepared to develop that guidance in a relatively transparent way.
We need to consider other people who are bereaved in order to ensure that the system is fair to everyone. Bereaved people in employment are not likely to be allowed to stay away from work for six months. On parental bereavement leave, which is a statutory entitlement, the ten-minute rule Bill was asking for a statutory period of only two weeks’ bereavement leave for an employed person following the death of a child. An additional 4,000 bereaved, non-married, non-civil partnered but nevertheless partnered people who are on UC will also be exempt, although they will not be entitled to the bereavement payments themselves.
Our analysis from the current flow of bereavement benefit claims indicates that 55% of claimants are in employment. Out of the remainder, only 9% of widowed parents are unemployed and, if they claimed universal credit, would be required to undertake work-related activity six months after bereavement. Given that the policy of not imposing conditionality requirements on bereaved claimants claiming universal credit for six months is already more generous than that for bereaved individuals in other circumstances, and that our flexible conditionality regime allows us to reflect on and respond to individual circumstances, I see no merit in having a longer period.
I turn to the distinction of kinship carers; I enjoy boasting about the one-year concession on conditionality for kinship carers. I did that for very particular reasons. The death of a parent at any time is clearly a huge loss to a family and children need support during the grieving period, which can be a long period of time, as my noble friend pointed out. In fact, the evidence tends to show that grief comes out well beyond the one-year period. The support will be not only for the surviving parent who has knowledge of their child and how best to support them, but in most cases there is an existing support network of extended family, friends, schools and clubs. Unlike bereaved children who still have a parent to support them, other children do not have that support as they move into a kinship situation. They may have moved away from their home and school, meaning that their social support network has also been removed, and they need time to make new friends, settle into school and learn completely new routines. The difference with kinship carers is that this marks a huge change for both the child and the adult. On top of that, the adult concerned may have little or no experience of looking after a child, and will need time to make adjustments to their own life in order to accommodate the child.
On the point raised by my noble friend on the move to part-time work, I can confirm that a bereaved parent who changes their employment to part-time work will still be eligible to claim universal credit.
Removing any requirement to engage with the labour market through universal credit for a longer or even indefinite period could have a negative effect on a person’s recovery and long-term job prospects. We believe that allowing people to engage with the labour market through universal credit is necessary to help them adjust and regain control of their lives.
Baroness Hollis of Heigham
Did the Minister say “allowing people”; in other words, is he suggesting that it is the choice of the bereaved parent?
Lord Freud
Yes, I did. There is an element of push-pull and expectation, and the expectation here is that people would engage with the labour market after six months except where there would be difficulties in doing so. That is exactly why we want to develop a good guidance package, which we shall do in consultation with the key stakeholder.
Lord Freud
One of the key things is that there are clearly some terribly tragic and difficult situations involved here. However, the risk is that one looks at the very worst cases and draws up a policy that suits them, even though the majority of people are not in those extreme circumstances. What we are trying to develop here is a reasonable norm and then a capacity to adjust for the kind of extreme circumstances that do happen. We need to make absolutely sure that we are able to adjust for those—that is the structure we are looking at here. The risk is, as noble Lords know, that we do something for everyone when literally only 2%, 3% or 4% are affected. Noble Lords will have heard the percentages I gave about the number of families, which is 9% of the total. I want to try to avoid designing a system based on one particular example.
Baroness Hollis of Heigham
But why, unless the Minister is actually accusing widowed parents of exploiting or milking the system? Being more generous in the case of the very moving examples given by the noble Baroness, Lady Finlay, would give greater choice for other widowed parents with perhaps less difficult circumstances. Unless the Minister thinks they are milking the system, they will find their path back into the labour market. Why does he have to make it quite so tidy and precise? Why does he have to second-guess all the time?
Lord Freud
It is important that the system sets out some generous norms against other examples we are looking at. There are people in employment, who would very rarely see a norm of six months, and people who are cohabiting—a huge proportion of the people who suffer this are in that situation and, as I will go on to say, it is very difficult to help them any more. We set up a good norm and then have a robust system to make sure that we can make the appropriate adjustments for people for whom that norm is not appropriate. As I said, I have asked my officials to meet with the Childhood Bereavement Network in the coming months to discuss the policy approach in universal credit and to look at the guidance. I hope that I will be able to report back in time to inform our next debate on this.
I turn to the amendment in the name of the noble Baroness, Lady Meacher, and how widowed mother’s allowance and widowed parent’s allowance are to be treated under universal credit. She is not here now but I know she will read very closely what I say. As in the assessment of any income-related benefit, it is necessary to consider the income the house or individual has access to, including income from other social security benefits. As both the two benefits—the WMA and the WPA—are income-replacement benefits, it is right that they are taken into account under universal credit. Disregarding them would increase government spend on universal credit by a commensurate amount of around £300 million. Claimants migrating to universal credit from legacy benefits, where their circumstances have otherwise remained the same, will be transitionally protected.
This is what Cruse Bereavement Care said about the new system:
“It is a simple system that would provide bereaved people with access to immediate help. It gives immediate financial support at a time when other available sources can be rendered inaccessible … If the principle is that the universal credit should ensure that the bereaved family are adequately supported on an on-going basis then a lump sum to help enable them to get back on their feet may be simpler and more appropriate”.
Of course, this is exactly what we are doing.
Baroness Hollis of Heigham
Except that it may be better for some, but what the Minister is doing is making it a requirement for all.
Lord Freud
The noble Baroness is now going back to the conditionality debate, but I am now going on to the actual level of payments, which is a somewhat different point. I understand that there is a concern that there could still be a potential impact on a small subset of those universal credit claimants who also receive widowed parent’s allowance. This is the point about them being worse off by £7.56 a week. This is not an unintended consequence, because we have been clear about treatment of unearned income and that widowed parent’s allowance would be deducted pound for pound in assessing universal credit. As noble Lords know, universal credit is a fundamental reform of the current benefits system and leads clearly to both increases and reductions in the level of entitlements. However, no one already on benefit whose circumstances remain the same will lose out in cash terms as a direct result of the move because of the transitional protection.
The point is that widowed parent’s allowance is a taxable benefit. Working claimants might not only have their allowance deducted from the universal credit entitlement, but also pay tax on it through the tax code in their earnings. The reduction in net earnings as a result of the additional tax will be only partly offset by an increase in universal credit because of the 65% taper. Noble Lords will appreciate that there are good reasons why universal credit works on the basis of net earnings and tapered withdrawal, because that is the mechanism that is designed to incentivise work. Nevertheless, I will look carefully at the points that have been made on this issue in this debate and by stakeholders. I need to emphasise, however, that it would be a disproportionate and expensive response to move to a full disregard for all claimants of either of these two awards.
I now move on to the question of allowing bereavement support payment for unmarried couples and the request for a review within six months following Royal Assent. Our law and tax systems recognise inheritance rights and needs of bereaved people only if they have a recognised marriage or civil partnership. This stems from the founding principle of the national insurance system, which is that all rights to benefits derived from another person’s contributions are based on the concept of legal marriage and civil partnership. Allowing cohabiting couples to have access to bereavement benefits would significantly increase complexity; and proving cohabitation can be incredibly challenging, not to say an intrusion into claimants’ private lives.
On the request for a review, there clearly needs to be a period following introduction of the new payment to allow changes to bed down before we can review its effectiveness and impact on the different groups of claimants. I can assure the noble Lord, Lord Browne, that we have already committed to review the change in our impact assessment at a point when sufficient evidence is available to assess all aspects of the policy.
I want to pick up another point made by the noble Lord on the take-up of bereavement benefits. The take-up is high at around 90%, which has been helped by the rollout of the Tell Us Once information service. The majority may not qualify for the full amount due to the complex contribution conditions. Indeed, this is why we have simplified them into a position where someone is entitled to the new payment on the basis of payments of 25 times the lower earnings limit in any one tax year. I believe that the bereavement support payment will be simpler and fairer than the current system, providing support when and where it is needed most by supporting people to regain control of their lives as soon as they can. These amendments would be a backward step resulting in more complexity in a system that would provide less help to those who need it when they need it.
Lord Freud
The point is that, depending on if it is a late payment, it would be possible to make a very small contribution and get a large payment of £9,800 back. I am happy to write to the noble Lord with a full justification of that decision.
Baroness Hollis of Heigham
My Lords, I am very appreciative of everyone’s contributions. A lot of issues have been explored, and although the Minister has been as fastidious and careful as he always is in trying to respond to the points, I have to say that, on what is now our fifth day in Committee, I thought that his responses here have been less persuasive than they have been to almost all of our other debates. They will certainly require us to look very carefully indeed at the small print of his responses because I am not persuaded by almost any of his points.
Let me first thank the noble Baronesses, Lady Finlay and Lady Meacher, and the noble Lord, Lord German, who I think actually used the word “cruel”. If the noble Lord wishes to resile from that, I apologise. I think that they all spoke very well and movingly about the situations in which families find themselves—not just singly bereaved but doubly bereaved. Sometimes the surviving partner or spouse may be seriously injured, which means that they cannot support a child in the family in the way they would wish. We know that such tragedies exist and the consequences multiply in what is a ripple effect for families for many years. That is especially the case when there are multiple losses. All sorts of feelings of guilt continue to plague unreasonably and irrationally but completely understandably, those who survive such a situation.
Lord Freud
I want to make sure that the noble Baroness adjusts the figure of 88% on the record, because that is not the figure. I was trying to supply the figures. Across all groups, 50% are better off compared to 48%. The figure of 88% is for a narrow group of those in work who are receiving the widowed parent’s allowance. A lot of misleading figures have been going around on the structure of this. There are effects of the combination of these payments with other benefits in the system, particularly universal credit. You cannot ignore those interactions and our figures show that poorer people in particular do well out of this new system.
Baroness Hollis of Heigham
I emphasise again that without seeing the Minister’s detailed working I will sustain the figures I have, unless, until or if the Minister can show me the points at which they are inaccurate. Is it 88% of widows with children in work who will be worse off, and 57% of those not in work who will be worse off? To put it another way, any widow with children who would have claimed for two years or more will in future be worse off. It may be that the Minister has not fully taken into account the cohort effect with regard to the point people at which join the labour market. Obviously, we should continue this in correspondence.
My noble friend Lord Browne pressed the Minister hard and showed again that targets interlocking with financial need are going to leave very many widowed parents in a far worse position. He encouraged the Minister to consult further with the Childhood Bereavement Network group of voluntary organisations to see whether a rearrangement of these benefits can meet some of our concerns. I am pleased that the Minister is willing to do this. He also argued not just for a reconsideration but, if necessary, a review, especially as regards cohabiting parents. If the Minister is serious about trying to bring benefits up to date, he should recognise that 50% of all children are now born outside marriage, even though the relationship may be an entirely stable one with two committed parents. The Minister deploys the argument of bringing structures up to date to suit his case, but apparently refuses to recognise other people’s positions. He is obviously right to want to continue to keep all benefits under review as an act of stewardship. However, if he is going to take account of this changed world, he is selecting what factors he chooses to take account of and ignoring others that are equally significant—and possibly in many ways more so—in their effects on families and their children.
The Minister made several points. First, as regards structure, I accept that we need to review it but I think that he is going about it the wrong way. Secondly, as regards money, he paraded the gainers against the losers and implied that somehow that is all right because there is some mythical average. It is not all right and I am sure we will come back to that point. The point on which he was least persuasive was that of conditionality. He seems to think that when you have lost a spouse and your children are very insecure, fearful and frightened, and need the surviving parent’s full-time attention, six months’ relief from conditionality is generous. I would tell him that he needs to live in the world that such parents inhabit. It really is not generous. He is making the comparison with, say, a single parent under UC. I accept that a widowed parent in that situation would be more generously placed in terms of work conditionality than a single parent unaffected by widowhood would be under UC, but that is not the point we are making.
I cannot believe that the noble Lord is deliberately bypassing this point. Our knowledge of what those widowed parents and their children experience was built into the previous structure that is now being abandoned. There is an apparent reliance on the fact that the relevant provision is somewhat better than UC, and therefore what have we got to complain about? The Minister needs to ponder some of the literature which the noble Lord, Lord German, identified; perhaps he has. It may shape his perception of this issue of work conditionality. He is so completely wrong on this that I am puzzled because I know that he tries to enter into the situation of recipients of benefit.
Finally, the Minister referred to kinship carers and charmingly boasted that he had been responsible for making their situation better. I am very glad indeed that he did, but the lesson I draw from that is that widowed parents should now turn themselves into kinship carers. Is it his intention to make the regime harsher for the parent and their children who are suffering grief than is likely to be the case for kinship carers, given that the latter are nearly always grandparents? I know they are nearly always grandparents as I have done some work on this. Is it the Minister’s intention that the regime should be harsher for the widowed parent with children than for a grandparent caring for the children, particularly if the maternal grandparent is involved who has suffered not the direct loss of a son but, say, that of a son-in-law? Is that what he is really arguing? I wonder how much experience he or his team have had of engaging with families in that situation. I would hope that at the very least he will take away from this the argument that whatever he may or may not be able to do in terms of budgets and cost neutrality—and that may follow discussions with the voluntary groups, which we welcome—he will at least extend his empathy for kinship carers, which we respond to and recognise, to the similar group of widowed parents, and at the very least not deploy work conditionality until a year has passed. That would at least go some way to meeting our concerns. Unless the Minister wants to respond to me further now, I beg leave to withdraw the amendment.
Lord Bates
He might say that but he is one of the providers and I therefore think that that is certainly well worth listening to. Another reason why we have come to this conclusion is because there is a great deal of uncertainty about what is happening out there. Auto-enrolment in pension schemes has been a huge success and the previous Government deserve credit for introducing it in the 2007 and 2008 Acts, based on the recommendations of the Turner commission. The price of the success of auto-enrolment is that it is creating a larger number of smaller pension pots as people move on. Figures have been quoted of there already being 370,000, and the noble Baroness, Lady Drake, has talked about a future figure of 600,000. That means that the need to make a decision is more urgent than ever. The noble Baroness was asking, “What does the industry think? What are people actually thinking?”. Pensions Expert, in its comment and analysis section said:
“If last year was about policy, then this year it is going to be all about making things work. Government have now clearly set the direction of travel. The success of auto-enrolment—in terms of low opt-out rates—means even more small pots are going to be created than were expected. Previous estimates that auto-enrolment would create around 370,000 new pots of less than £2,000 each year now look woefully low”.
They are very clear in what they are saying: they want direction. That does not mean to say that that direction cannot be changed by a future Government—just that they are getting clear direction. We consulted about it in 2011; in 2012 we issued a response; in 2013 we actually said what we were going to do. It seems as if finally, the industry—and, we hope, members—are getting their heads around the fact that this is the preferred option and the route that we are going down to ensure that we actually make it work.
Baroness Hollis of Heigham
They may be getting their heads around the Government’s position, but that does not mean that they agree with it.
Lord Bates
The noble Baroness says they do not agree with it, but when the ABI actually carried out a survey and asked people which one they preferred, 58% of consumers said they preferred pot follow member.