Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill Debate

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Department: Department for Work and Pensions

Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill

Margaret Ferrier Excerpts
Margaret Ferrier Portrait Margaret Ferrier (Rutherglen and Hamilton West) (Ind)
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I beg to move, That the Bill be now read a Second time.

First, I want to congratulate the right hon. Member for North Somerset (Dr Fox) on the progression of his Down Syndrome Bill, which I very much support.

My Bill makes changes to the legislation governing the way occupational pension schemes can convert guaranteed minimum pensions into other scheme benefits. The Bill is very technical looking, but it is extremely important. It will help occupational pension schemes to correct a basic issue of men and women being treated differently in those schemes because of the impact of having a guaranteed minimum pension. It will help enable pension schemes to ensure that people do not receive less pension income than they would have received if they had been the opposite sex. In other words, it will help schemes to correct a situation that has been judged since 1990 to be fundamentally unfair.

Guaranteed minimum pensions, or GMPs, are the minimum pension that certain occupational pension schemes have to provide to their members. This applies to occupational pensions contracted out of the additional state pension between April 1978 and April 1997. It ensures that members receive a broadly similar amount of pension income in retirement as they would have received had they not been contracted out.

However, guaranteed minimum pensions differ for men and women, reflecting historical differences of treatment in the pension systems based on sex. People with the same employment history can have different amounts of guaranteed minimum pension depending on whether are men or women, even if they do exactly the same job for the same time at the same salary. It is not even as straightforward as men getting higher guaranteed minimum pensions than women; in fact, both men and women can lose out on pension as a result of their sex.

Successive UK Governments have made it clear since 1990 that occupational pension schemes need to equalise pensions to correct for these effects of guaranteed minimum pensions. In 2018, a High Court judgment confirmed that occupational pension schemes must equalise pensions to address these differences. Speaking as someone who has worked and built up occupational pensions of my own, it seems wrong that people can lose out on even a small amount of pension income purely because of these differences. Occupational pension schemes are therefore required to do something called equalisation—going back and correcting people’s overall pension to ensure that it is not lower than it would have been had the person been of the opposite sex.

Tom Randall Portrait Tom Randall (Gedling) (Con)
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I thank the hon. Lady for bringing the Bill forward. She is talking about the history of this technically complex issue, which goes back to 1990. Does she agree that the changes introduced by the Bill are well overdue and that, by bringing it forward, we will get the change that we should have had a long time ago?

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Margaret Ferrier Portrait Margaret Ferrier
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The hon. Member is spot on; the change is well overdue. I will come to that, and I am sure that the Minister will answer that point too. I think the pension schemes have found some difficulties; as I say, I will come to that.

It is important to be clear that no one will have money taken away from them as a result of the Bill when pensions are equalised. If it turns out that someone is entitled to more guaranteed minimum pension than they would be entitled to if they were the opposite sex, nothing happens; that advantage is not taken away. The Bill seeks only to increase pension income for those already losing out because of their sex due to the nuances of having a guaranteed minimum pension. It is also important to be clear that this is not about giving anyone extra pension that they are not entitled to; it is simply about making sure that no one loses out on pension income as a result of their sex.

If one person has a smaller guaranteed minimum pension than another purely because the first person is male and the second female, their overall pension entitlement needs to be corrected. However, correcting people’s pensions in this way is proving a very slow process, as the hon. Member for Gedling (Tom Randall) said. The Department for Work and Pensions, working with the pensions industry, tried to cut through the complexity by offering a methodology, set out in guidance, for pension schemes to use. The methodology involved converting the guaranteed minimum pension into what I will call normal scheme benefits, using existing legislation already on the statute book.

The industry agrees that this is a sensible approach, but has pointed out that the legislation supporting the conversion process contains some uncertainties that it believes will expose it to legal risk and potential accusations of not equalising correctly. For example, the way survivor benefits are treated in the conversion legislation needs to be clarified. The industry has pointed out that legal requirements for survivor benefits when guaranteed minimum pensions are converted are not sufficiently clear. Survivor benefits are the benefits paid out to a scheme member’s widow, widower or surviving civil partner when the member passes away, and are therefore extremely important.

Equalising someone’s pension to take account of the differences that arise because they had a guaranteed minimum pension is, as I have said, very important, but schemes need clarity and legal certainty before they are able to proceed with this essential process. That is what the measures in my Bill seek to provide. Similarly, before converting guaranteed minimum pensions, pension schemes are required to get the consent of the sponsoring employer that finds the scheme. That sounds entirely reasonable, since after all the sponsoring employer has invested a lot of money in the scheme to ensure that its employees have a decent retirement income.

Unfortunately, that is not as straightforward as we might expect because the current legislation does not cover all situations, such as where the original sponsoring employer is no longer in business. As a result of this lack of clarity in the legislation, some pension schemes have held off equalising for these effects of guaranteed minimum pensions. This Bill will help with that by rectifying those uncertainties and clarifying the legislation that schemes will use if they follow the methodology set out in the Department for Work and Pensions guidance.

I should make it clear to the House at this point that the Bill does not impose any new costs or requirements on occupational pension schemes or their sponsoring employers. Affected occupational schemes have known that they need to equalise pensions for the effect of guaranteed minimum pension for many years and should have been planning accordingly. The Bill will simply help pension schemes to do exactly what they need to do to stop people losing out.

I have engaged with representatives from the pensions industry, who welcome the provisions. The industry has long lobbied for the clarifications in this Bill to be made. I should hope that all here recognise the Under-Secretary of State for Work and Pensions, the hon. Member for Hexham (Guy Opperman) sitting opposite me today; I am delighted to say that the Government have decided to support my Bill. It is good to be working with the Government to make things easier for pension schemes.

John Lamont Portrait John Lamont (Berwickshire, Roxburgh and Selkirk) (Con)
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I congratulate the hon. Lady on bringing forward this Bill. She is speaking extremely well on a very technical area of pensions law. On the devolution point, she will know that Stormont has agreed to deal with the same issue, which is devolved to Stormont, through this Bill. Does she agree that that is a good example of where this Parliament and the devolved Parliaments can work together to achieve a desired positive outcome?

Margaret Ferrier Portrait Margaret Ferrier
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I thank the hon. Member; I am not sure I agree wholeheartedly with all his intervention, but the Bill extends to England, Wales and Scotland, and Northern Ireland, as he mentioned, has asked to be covered by it as well. This particular Bill extends to the whole UK and I am happy that it includes Scotland as well, unlike the Bill of the right hon. Member for North Somerset, which only covers England. As I said, it is good to be working with the Government to make things easier for pension schemes in fulfilling their obligations to their members and to ensure that benefits are paid correctly to members of occupational pension schemes.

I will not take up a lot of time, because the hon. Member for Meriden (Saqib Bhatti) is looking to give his Bill a Second Reading as well. But before I finish, there are quite a number of people on the DWP team who I would like to thank as they have helped me considerably: Narinder Clarke, Anna Smith-Spark, Gareth Thomas, Katy Marcus, Maria Burgess and David Brown. Of course I also thank my parliamentary assistant Kim Glendenning, who has helped me considerably in pulling all this together, the Pensions and Lifetime Savings Association and the Minister.

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Richard Holden Portrait Mr Holden
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I thank the Minister for that intervention.

Some of the changes, particularly the lowering of the earnings threshold, could be introduced in secondary legislation, but primary legislation will be required to extend the auto-enrolment to 18 to 21-year-olds; I should let the Minister know that I have a date for a ten-minute rule Bill in the new year to do just that.

I very much hope that the Government will look at lowering the threshold. Low-paid women with multiple jobs in particular could be missing out on many thousands of pounds going into their pension pots. Low-paid women with multiple jobs in particular are potentially missing out on many thousands of pounds going into their pension pots due to issues around auto-enrolment. It is another inequality in the system that, as the hon. Member for Rutherglen and Hamilton West mentioned, tends to affect women disproportionately.

Margaret Ferrier Portrait Margaret Ferrier
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I just want to clarify that the rules around guaranteed minimum pensions are very complicated, so both men and women can lose out if pensions are not equalised because of indexation and revaluation. I am sure the Minister will cover that in his closing speech, but it is about two people. Sometimes women can have a higher pension and then the man will overtake it, or vice versa, because of the different ages of retiral. I just wanted to make it clear that both sexes can lose out.

Richard Holden Portrait Mr Holden
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That is an incredibly important point. Both sexes can lose out and that is another element with auto-enrolment. There will be men in part-time work, maybe with caring responsibilities, who will also be in a similar situation.

The Minister has been a real reformer and is reforming an awful lot. I know there is a lot more to do. I encourage him to think broadly and work with Members across the House to continue the great reforming work he is doing. It has been great to see him working with the hon. Member for Rutherglen and Hamilton West. I hope to work with him in the future as I start to push for further reforms.

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Margaret Ferrier Portrait Margaret Ferrier
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I thank the Minister for his support in this important matter. He touched on the ballot for private Members’ Bills. I was delighted to be one of the successful 20; I am sure any Member who puts in for the ballot is keen to come out as one of those 20. I am grateful to all Members who have spoken today for their valuable contributions: the hon. Members for Stourbridge (Suzanne Webb), for Hastings and Rye (Sally-Ann Hart), for North West Durham (Mr Holden), for Gedling (Tom Randall), for Dover (Mrs Elphicke), for Stalybridge and Hyde (Jonathan Reynolds) and for Berwickshire, Roxburgh and Selkirk (John Lamont).

Correcting this basic issue of men and women being treated differently in these schemes because of the impact of having a guaranteed minimum pension that affects their hard-earned pension income is important. Although the Bill is small and technical, we should not underestimate its value. It should help schemes to use the guaranteed minimum pension conversion legislation to provide equality for affected pension scheme members by bringing much needed clarity for the industry that administers them. I am heartened and grateful that there is clear cross-party agreement on this issue, and I very much look forward to taking the Bill through its remaining stages.

Question put and agreed to.

Bill accordingly read a Second time; to stand committed to a Public Bill Committee (Standing Order No. 63).