Pensions Bill

Baroness Turner of Camden Excerpts

Monday 16th December 2013 Grand Committee

Moved by

[Baroness Turner of Camden]

1: Clause 1, page 1, line 6, leave out subsection (2)

[Baroness Turner of Camden (Lab)]

My Lords, I should explain to the Committee that a number of amendments that I have tabled to the Bill have been tabled after I have had a fairly lengthy discussion with the pensions officer of the union Unite, of which I am a member. As the Committee will probably know, for many years, I was a national officer of one of the founding unions of Unite, and that is where I come from on pensions. The union has always been very interested in pension provision, and the amendments have been tabled as a result of discussion with large sections of the membership.

This amendment arises because of the exclusion of certain people from the capital altogether. The reform proposed in the Bill has been brought forward at a time when half of all existing pensioners qualify for means-tested benefits and one-third of all pensioners with incomes below the guaranteed credit level for pension credit are not getting the benefits.

I am told that there is huge resentment among today’s pensioners that they are being ignored, and special resentment on the part of those who feel that they might have benefited from the new legislation but have lost out because of the cliff edge presented by the effect of the April 2016 date.

For those reasons, I tabled the amendment that the subsection should be deleted. As I understand it, the policy of the union is that government policy ought to be focused on raising the level of the basic state pension for all pensioners. That is what the union is standing on at the moment. It is for that reason, and to test the feeling of the Government on the issue of the concern of existing pensioners, that I have tabled the amendment. I also fully support Amendment 2, with which it has been grouped, because, again, it is concerned with the poverty of existing pensioners, which is something we should all be concerned about. I beg to move.

--- Later in debate ---

[Lord Freud]

My Lords, I shall respond where I can. I think that I shall have to write on the future of the savings credit as a result of an earnings increase of guaranteed credit, as it is quite complicated. At this stage, I shall also have to write to confirm exactly where we are on the question of whether the figure is gross or net. In practice, I think that I will end up writing quite often on these figures because they are quite complicated and one wants to double-check them carefully. Offering responses on the hoof may be a little dangerous and I shall be reduced to writing more often than would be the case with some of the other things that we discuss. With those issues raised and with a process to deal with them, I again ask the noble Baroness to withdraw her amendment.

[Baroness Turner of Camden]

I thank everybody who has participated in this debate, which has been very interesting. It has demonstrated that there really is a bit of a problem here with current pensioners who feel that they have been neglected, and I think that they have some justification for feeling that. I am very interested in what the Minister had to say, particularly on pension credit. I shall look at that very carefully when we have the opportunity to read what he has said this afternoon.

I am surprised that there has not been a rather better reception for the amendment tabled by the noble Baroness, Lady Greengross. Quite frankly, I cannot see what there is for the Government to lose by having an annual review of pensioner poverty. I should have thought that it would be a very good idea, and it would certainly ease some of the concerns that pensioners have at the moment. In the mean time, I shall withdraw the amendment—

[Lord Freud]

I want to make it absolutely clear, if I did not do so in my answer, that that information is provided annually. I was by no means not accepting that amendment; I was just making the point that it was a good idea and, as such, had already been implemented.

[Baroness Turner of Camden]

I accept that the Government have the information and I am very grateful for that. On the other hand, we were hoping that there would be an opportunity in Parliament to discuss the results of a review annually. That would give us the opportunity, as parliamentarians, to see what the position was annually as far as poor pensioners were concerned. That was one of the aims of the noble Baroness’s amendment. However, I am very grateful for what the Minister has said this afternoon. We will look at it with a great deal of concern because we are still worried about what happens to existing pensioners. We know that some of them are upset and worried that they have been missed out in the pension review, which is what this Bill is all about. Therefore, I will certainly have a look at what has been said not only by the Minister but by everyone else in this very interesting debate. In the mean time, I beg leave to withdraw the amendment.

Amendment 1 withdrawn.

--- Later in debate ---

Moved by

[Baroness Turner of Camden]

8: Clause 2, page 1, line 17, leave out “35” and insert “30”

[Baroness Turner of Camden]

My Lords, this amendment is about the 35-year qualification period to get the full-rate single-tier pension—of course, that also applies to the reduced rate pension. I have tabled the amendment because a lot of concern has been expressed to me. Presently, there are 30 qualifying years for the basic state pension. That period of 30 years has been achieved after a fair amount of agitation in the past, and people are anxious to retain it. The Government, however, apparently argue that the 35 years is associated with a higher benefit, but this argument ignores the fact that most people will also have established some rights to the second-tier pension at that stage.

Under the present framework, a low-paid employee can establish an entitlement to a level of state pension equal to £144 if they have 30 qualifying years’ contributions or credit for the basic state pension, and of course they have to have 22 years for the second state pension. Putting in 35 years instead of 30 seems to a number of people simply to be going backwards. It is obvious that other people feel like that as well because my noble friend Lady Sherlock has tabled Amendment 16, with which my amendment is grouped and which again raises doubts about the 35-year provision. That amendment suggests that there should be a review to determine costs and benefits and so on.

I would be in full support of that if my amendment was not accepted. I would prefer of course to have 30 years rather than the 35, but my noble friend’s amendment at least suggests a review and would ensure that the matter was thoroughly discussed and a report issued to both Houses of Parliament. I would be in support of that as well. I beg to move.

[Lord Browne of Ladyton]

My Lords, I am grateful to my noble friend Lady Turner for her amendment, which, as your Lordships will have noticed, is grouped with an amendment in my name and that of my noble friend Lady Sherlock, which calls for a review of the phasing.

For the sake of some chronology in our thinking, a similar amendment to this was considered in the House of Commons after Clause 4. That was to the benefit of the debate in relation to it. The call for a review really belongs with Clauses 3 and 4 because it relates to transition whereas, as I have indicated earlier, Clauses 2 and 3 relate only to people whose qualification in terms of contributions has been achieved post-2016. In the words of the Pensions Minister, that makes it much easier and simpler to understand Clauses 2 and 3 than it does Clauses 3 and 4, which are significantly complex. However, my noble friends will be pleased to hear that I do not intend to go into the detail of all the elements of the transition. There are complexities there, some of which it would be helpful if the Minister explained to the Committee so that we had an understanding of the complexity and the consequences of it for individuals.

I will first address the amendment in the name of my noble friend Lady Turner, which challenges the imposition, as it were, of a qualifying period of 35 years so soon after we changed the law to reduce the qualifying period for the state pension to 30 years. It would be to the benefit of the Committee’s understanding of the Bill and the policies that instruct it if the Minister addressed himself, as I am sure he will, to the way and the processes by which that figure of 30 years was arrived at. It was probably best explained by the Pensions Minister at col. 141 of the House of Commons Committee stage on 2 July. He set out broadly that the existing state pensions structure had two elements to it: the basic state pension, for which there was a 30-year qualifying period, and then the additional pension—as we have come to know it in terms of the Bill, but which has different elements depending on which years one looks at—which could be built up from rights that have been built up over as much as 49 or 50 years of a working life.

The Minister then explained that in arriving at a period of contributions that should entitle one to an amalgamation of these two rights, he looked for a “weighted average”. He was challenged, probably correctly, as to why in earlier consideration of where it should lie he had favoured or indicated—at least in his evidence to the Select Committee—the figure of 30 years as opposed to any later figure. He was asked pointedly by my colleague Gregg McClymont whether there was a financial consideration as opposed to just some broadaxe approach at trying to work out somewhere that was appropriate, and which could do justice to those two elements as they were brought together.

The advantage that my noble friend Lady Turner gives the Committee is that she gives the Minister an opportunity to explain in more detail how the 30-year figure was arrived at and how it can be justified, as opposed to some broadaxe, weighted average-type judgment. If it is just a judgment that had to be made for speed and efficiency, the Committee ought to know that it is about the right figure and there is nothing more to it than that. That is the strong implication of the way in which the Pensions Minister approached his explanation in the debate in the House of Commons.

We on these Benches support the single-tier pension and recognise that at some stage, judgments have to be made, but it is much easier to support judgments if there is an explanation of the reasoning behind them to convince us why it should be 30 years rather than 32, 33 or whatever. Those figures are very important.

I do not think I will detain the Committee for nearly as long as my honourable friend Gregg McClymont engaged the Committee in the other place on the amendment that now stands in my name and that of my noble friend Lady Sherlock. However, in introduction, I want to tease out one or two observations about the amendment that I think should properly lie in our discussion after the debate about Clause 4, to explain why a review is necessary. Once one gets a sense of the complexity of the transition and the interaction of different calculations, one begins to realise just how important it is to have a review informed by reality. Of course, a part of that reality is the level at which the single-tier pension is fixed so that one knows who are the losers and who is being affected

What really instructs the review is a defeat of expectations. The Pensions Minister engaged with the perception rather than the reality. I am not keen on trying to argue policy changes on the basis of perception. That is principally because for two years I was a Minister in Northern Ireland, where I was repeatedly told, “In this country, Minister, you have to understand that perceptions are much more important than facts”. No matter how good my arguments were, I was told, “But that is not how it will be perceived” in one community or another, and that perceptions were much more important than facts—so much so that I thought for a period of having one of those famous signs on the desk that Ministers and executives often have made, reading, “In this office, facts are more important than perceptions”, but I thought that that might have been provocative and decided that it would not be a good idea.

Greg McClymont argued, and I support him, that there is a significant group of people who have a similar experience to that expressed in the e-mail that coincidentally I received this afternoon—people who have a set of expectations that are defeated. Unless there is engagement with those issues and some sense of fairness, the fairness, simplicity and other measures that the Government have set for these changes will not be met.

In this case, there is a group of people who have an expectation that they will get the full rate of whatever the state pension is after 30 years of work or 30 years of national insurance contributions. They will be met with the reality that it now requires 35 years. I will come to this in some detail—I am not going to take that long about it—but I know that one can say to them that 30-35ths of this figure is more than 30-30ths, or more than 100%, of the figure that they were expecting. However, they are retiring into an environment in which other people are getting not 30-30ths of the figure that they were expecting but 100% of what the new figure will be. That is an important point to make.

--- Later in debate ---

[Lord Freud]

My Lords, under the single-tier pension we will be merging two schemes: the basic state pension, which requires 30 qualifying years for the full rate, and the state second pension, which you can contribute to for up to nearly 50 years.

Requiring 35 qualifying years for the full single-tier pension strikes the right balance. It will enable the majority of people who contribute to achieve a full state pension through either work or the comprehensive system of credits available to people unable to work, while still retaining the contributory principle. This leaves considerable leeway for people to have gaps of up to around 15 years in their working life and still qualify for the full rate. In 2020, the significant majority of single-tier pensioners—around 85%—will have 35 qualifying years or more. Our analysis suggests that in 2020 around 90% of male and 80% of female single-tier pensioners will have 35 or more qualifying years.

There is a simple response to the point that the noble Lord, Lord Browne, raised about expectations. In the existing system, we have no such thing as a full state pension. We have £110 basic, plus who knows how much additional pension. It is complex and people do not know what to expect. That is exactly the point that the single-tier pension will address.

In the early years after implementation, people in Great Britain with between 30 and 34 qualifying years are just as likely as those with 35 or more qualifying years to have a higher state pension under single tier than under the current system. The transition calculation provides for a “better of” comparison at April 2016 so that the person receives the higher of their national insurance valuations based on old and new scheme rules, with the old rules being based on 30 qualifying years.

That will, in fact, advantage some people because, where someone does not have the 35 years needed for the full level of single-tier pension, they will receive a pro rata amount according to the number of qualifying years that they have built up, provided that they meet the minimum qualifying period. Someone with 30 qualifying years would therefore get a single-tier valuation of 30-35ths of the full rate, or around £123 per week, as my noble friend Lord Stoneham pointed out, less any adjustment for contracting out based on the illustrative single-tier rate of £144. In many cases, the single-tier valuation will be higher than the valuation that people would get under the current system, as 30 qualifying years of basic state pension gives an income of £107 a week in 2012-13 terms.

Furthermore, where someone’s foundation amount in 2016 is below the full single-tier rate, people will have the opportunity to increase this amount by gaining additional single-tier qualifying years before reaching state pension age through work, paying voluntary contributions or receiving national insurance credits. The current broad range of credits will be mirrored under single tier, and when universal credit is in place, it will extend credits to an additional 800,000 people who do not receive them under legacy benefits.

These arrangements recognise people’s contribution records in the existing scheme and allow people to have significant gaps in their national insurance record while still ensuring that 80% of new single-tier pensioners reaching state pension age by the mid-2030s receive the full rate of the single-tier pension.

The amendment tabled by the noble Baroness, Lady Sherlock, and the noble Lord, Lord Browne, would require the Government to conduct a review of a phased transition for the move between 30 and 35 years for a full pension. I hope that I have reassured noble Lords that there is little evidence that such transitional arrangements are needed. However, I need to point out that, if a review were to recommend a single-tier pension based on a 30-qualifying-year requirement, this would carry with it cost implications. The estimated cost of such a system, compared to a 35-year model, would be around £700 million per annum in 2030 and £2.9 billion per year by 2060.

Furthermore, to reinforce the point about uncertainty raised by the noble Lord, Lord Browne, a delay in defining the qualifying requirements for the new system, which a review would necessitate, would introduce uncertainty for those closest to retirement. The period following Royal Assent will be a crucial time for the delivery of single tier, and making fundamental changes at that point might well delay implementation. This moves back to the amendment raised by the noble Lord, Lord McKenzie, about the importance of communicating the reforms and a clean communication. The point on the move from 30 years to 35 seems more of a communications issue than one of principle. To this end, helping people to understand how they may be affected, we have been conducting field work on communicating the impacts of the policy. I therefore ask noble Lords to withdraw these amendments.

[Baroness Turner of Camden]

I thank everyone who has participated in the debate because it has been very interesting. However, I have listened very carefully to the Minister and I remain unconvinced. Many people will wonder why on earth there is the change to 35 years when they were used to 30 years for the basic state pension that they have in operation now. They do not understand why there should be this difference and neither, in fact, do I. The Government have produced some information about costs, as has the Minister this evening, that seem quite fantastic to me. I will look at them very carefully because I will probably want to come back again, perhaps in a different way, when we look at the whole thing on Report. I will look carefully at what everyone has said in the debate because it is an issue that is of interest and concern to many people, otherwise I would not have put it down. However, in the mean time I beg leave to withdraw the amendment.

Amendment 8 withdrawn.