§ Mr. Colin Shepherd (Hereford)
I thank my hon. Friend the Under-Secretary of State for coming to the House to deal with an important point affecting two of my constituents. She has had to reschedule an important meeting with the National Association of Probation Officers, but I know that, just as it deals with the welfare of individuals, so must Back Benchers and Ministers deal with individuals as individuals when the need arises, and this is one such instance.
My hon. Friend will know from having seen the correspondence in respect of my constituents, Mr. and Mrs. Howard of 5 Kentchurch close, Hereford, that we have been in correspondence on the matter for some two years now. That is not to say that the problem arose two years ago. It started in 1978 and came to a head in 1983. It was as a consequence of a festering sense of grievance that Mr. Howard first came to see me in 1988. Since then we have been running the issue and, accordingly, I felt it appropriate to explore it on the Floor of the House.
My hon. Friend will know that Mrs. Howard reached retirement age on 10 May 1977 and on 31 May 1978 decided to draw the graduated retirement benefit to which she had contributed. My hon. Friend will be aware of the defects of the old graduated retirement pension scheme, and the amount involved was a matter of coppers. On that basis, not unnaturally, Mrs. Howard did not bother to tell Mr. Howard that she had taken that course of action. To Mrs. Howard it was a matter of peanuts; and to Mr. Howard, it was, in his phrase, "a few coppers" and irrelevant.
At that time, the receipt of graduated pension did not debar a wife from reaping the benefits of the husband working beyond retirement age to enhance their pension entitlement—to achieve the increments to her basic retirement pension as well as his. Here we reach the start of the area of confusion.
My hon. Friend will know that the regulations changed on 5 April 1979. Since Mrs. Howard retired before that change in 1979, the question of any problem arising as a consequence could not occur. Therefore, Mrs. Howard could not be aware of any difficulties that might come about as a result of continuing to draw her graduated pension when her husband reached retirement age in October 1980 after the change in regulations.
When, perfectly properly, the Department of Health and Social Security, as it then was, sent Mr. Howard form BR1 asking whether he intended to retire or to continue working, he completed it to the best of his ability with the knowledge that he had. This was a personal matter. He discussed with his wife whether he should continue working if the opportunity arose, but he completed it in June 1980 still unaware that his wife was drawing the graduated retirement benefit. I emphasise that he answered "No" in good faith to the question in section 5 asking whether he was aware of his spouse being in receipt of graduated pension or of any other benefit of that nature.
Having examined the form myself, I may say that that question is not designed to ring alarm bells. To those in the know and who work on such matters all the time, the words "graduated retirement benefit" mean something. The ordinary person in the street may understand the meaning of "graduated retirement pension" and of 452 "graduated retirement contributions", but not of "graduated retirement benefit". There is a failure to match the two. It certainly did not ring any alarm bells for Mr. Howard.
Because of Mr. Howard's negative response to that question, when the form arrived back at the DSS office, it did not ring any alarm bells there either. There was a misfit. There was not the facility for the office to tell Mr. Howard, "Because you answered yes to that question, a different set of circumstances apply." Because the question was answered in the negative, the office went along the path that told it there was nothing to worry about and that no problems would arise.
I take this opportunity to pay fulsome tribute to DSS officials in Hereford. They have been very helpful to Mr. Howard in trying to research his difficulties and to put their fingers on where the problems lay. Not unnaturally, Mr. Howard spent some time consulting those officers before coming to see me, and they were extraordinarily helpful. Perhaps I ought not to use the word "extraordinarily", because I find the DSS people in Hereford to be always very good. I count myself very fortunate in that regard. Nevertheless, the officers there were unable to throw much light on the saga, except to emphasise that there appeared to be an element of confusion.
Mr. Howard decided to accept his firm's invitation to continue working beyond retirement age, in the belief that by so doing he would enhance the retirement pension for both himself and his wife. Because he and the DSS were unaware of his wife's receipt of a graduated retirement pension, the office did not, and could not, advise him of the option that became available after the change in regulations, for a wife to withdraw from receipt of her graduated pension, so as to be able to enjoy increments in basic pension in due course. So the problem ground on.
After working for an additional three years and four months, Mr. and Mrs. Howard—Mr. Howard especially—were devastated to discover that their income was not to be as they had anticipated. When that first came to light, the shortfall was £5.11 a week, and the discrepancy has now increased to £7.05 a week. That is no small amount to someone whose sole income is a state retirement pension. Having worked beyond retirement age, the Howards find that being £7.05 a week out of pocket puts a different complexion on matters and on how they view their retirement.
In the correspondence that has been exchanged, the question arose whether Mrs. Howard was at any time informed of the situation. On the face of it, the mechanism for doing so is comprehensive. Lord Henley, who is my hon. Friend's colleague as Under-Secretary for Social Security in the other place, pointed out to me in his letter of 8 January 1990 that the Department's practice is to keep a record of forms issued and the relevant dates. According to the DSS, Mrs. Howard's pension papers are clearly marked as BR2101 and were issued on 28 July 1980.
BR2101, which has undergone a number of revisions since it was first published in 1979, would have set out for Mrs. Howard, had she received it, the current position and the way in which any changes could affect her. If Mrs. Howard had received it, it would have set out the position on her graduated pension.
Two issues result from that. First, it is obvious that there was some confusion when the regulations changed. The wording of the forms advising people of their options 453 is now far better than it was in 1979–80. When the regulations changed, it was not clear that some confusion could arise, and when it did, the forms were improved. It would be difficult now for people to fall into the trap that Mr. and Mrs. Howard find themselves in. Secondly, Mrs. Howard keeps personal papers meticulously, and it is clear that she did not receive the form BR2101, and as she did not know that she should have received it—why should she?; we only retire once—she did not look for it.
As far as I am aware, DSS papers are not normally sent by recorded delivery. In my experience, the Post Office is usually reliable, and special precautions are not required. However, I am disclosing a chapter in which one disaster followed another. I sometimes console myself with the saying that, if something starts to go wrong it will go right royally wrong. Macpherson's law of cussedness comes into play. It is not unknown for the occasional letter to go astray. All of us have experience of that happening. Although it is not a regular occurrence, it often happens to important papers with infuriating predictability.
I have much sympathy with Mr. Howard, or I should not have pursued the matter for the past two years. He has a genuine grievance—the knowledge that, if his wife had never worked and had not contributed in her own right, the extra time that he spent working would have resulted in an increased basic retirement pension for her at the full level, not the reduced level that she now receives. His extra three years and four months of work would have resulted in an enhanced pension for both of them.
In his letter to me on 22 August 1988, the then Under-Secretary of State at the Department of Social Security, the noble Lord Skelmersdale, pointed out that, until the April 1979 change, ability to receive full basic increments and graduated retirement benefit was an anomaly. I am not convinced of that. The anomaly is the reverse. Perhaps there was not much understanding of graduated retirement benefit, but it was perceived to be different from normal national insurance contributions. The contributions were put into two different columns on the payslip. The anomaly is the reverse because Mrs. Howard made graduated pension contributions—as did many other people—for no return.
I have a two-part solution to suggest to my hon. Friend because, in the Howard case, a genuine grievance needs to be redressed and we must consider how the problem should be addressed in future.
Surely, in a genuine difficulty of this kind, the first possible solution is that Mrs. Howard should be topped up to the extent of an additional £7.05 a week, as that would properly reflect the extra contribution that was made by Mr. Howard in his extra working time, without sacrificing the basic principle of having no duplication of benefit. The taxpayer is in exactly the same position. Mr. Howard is in exactly the same position as he would have been if he had tackled the matter the other way around, and Mrs. Howard would be in receipt of the £7.05. That is not unreasonable, because that is what the taxpayer would have expected to pay out had there not been a "misfit" of paper work.
The second possible solution is that arrangements be made for Mrs. Howard now to discontinue the receipt of graduated pension and therefore to qualify to receive the retirement pension increment of £7.05. That would roughly equate to the same position.
Those are the two ways in which I should like the difficulty to be resolved. My hon. Friend the Minister may 454 have reasons why they will not be practicable, and I should like to hear them. It has been agreed by all that graduated pensions were a con and were understood by all too few. They needed scrapping, and they were scrapped. There is obviously still scope for confusion and injustice.
I should like my hon. Friend to tell me that she will review all the arrangements relating to the hangover of graduated pension and will look carefully again at the regulations to see how such nonsense can be ameloriated. There is a great danger that the state will be seen to be mean when genuine people are caught up through circumstances that may or may not have been in their control but in which they acted in good faith at all times.
§ The Parliamentary Under-Secretary of State for Social Security (Mrs. Gillian Shephard)
I should like to begin by echoing the sentiment of my hon. Friend the Member for Hereford (Mr. Shepherd) regarding the circumstances of Mr. and Mrs. Howard's case. It is always unfortunate when individuals feel aggrieved by what they perceive to be unfair treatment by a Government Department. I knew that my hon. Friend has pursued this matter mast diligently with my Department on behalf of his constituents over a considerable period. I must congratulate him on his determined advocacy—as patient and courteous as always—and on the elequence of his speech. I thank him for his generous tribute to Department of Social Security staff in Hereford.
I shall address the points that my hon. Friend raised. However, he will understand that, as is often the case in social security matters, this case raises a number of complex and interrelated issues—first, the continued payment of graduated retirement pension; secondly, the position of individuals who decide not to claim their pension and earn increments to it; thirdly, the question of a woman's pension based on her husband's contributions; fourthly, the effect of claiming one benefit on another; and, fifthly, the responsibilities of the Department and the claimant. I should like to refer first to the graduated retirement pension.
As my hon. Friend is aware, between 1961 and 1975 a graduated pension was introduced as part of the state scheme. Its aim was to relate a person's retirement income to his or her pre-retirement income by way of an earnings-related element payable in addition to the basic pension. Payment of graduated contributions based upon one's level of earnings built up units of entitlement to graduated pension, and the size of graduated pension was determined by the number of units earned. My horn. Friend mentioned the change in legislation, and it is the case that the retirements of Mr. and Mrs. Howard spanned the change in legislation, but of course the point at issue is the choice that they made when Mr. Howard decided to retire. I shall refer to that point, of course.
The change in legislation was the Social Security Pensions Act 1975, which replaced the graduated pension scheme with the state earnings-related pension scheme. However, there are still many individuals with an entitlement to graduated pension on the basis of their contributions between 1961 and 1975—indeed, I am one of them. I should not wish to insult my hon. Friend by suggesting that he is as well.
The Social Security Pensions Act 1975, as amended by the Social Security Act 1989, provides that a person on 455 reaching pensionable age may choose not to claim state retirement pension and may earn extra pension—known as increments—for five further years. The practical effect of this is that an individual can increase the value of his or her pension by 7.4 per cent. per annum—37 per cent. over the five years.
Many individuals choose to do that and for many different reasons. For example, they may choose to do so for tax reasons or because they have a younger spouse and wish to retire at the same time. Many wish to continue in work beyond pensionable age and prefer to increase their pension by not claiming it until they either cease work or reach the age of 65 for women, or 70 for men, whichever comes first.
The concept underlying the policy of pension increments is to increase the pension of individuals who, by choice, forgo claiming any part of their pension entitlement from the state. It is not uncommon, as indeed was the case for Mr. and Mrs. Howard, for a woman to reach retirement age before her husband, at which stage she has the right to claim and receive any retirement pension she has earned on her own contributions during her working life. Her husband will continue to pay national insurance contributions in respect of his future state pension. As my hon. Friend will be aware, under pensions legislation, a man's contributions also provide his wife with an entitlement to state pension.
Again, it is not uncommon for a husband whose wife has already reached pensionable age on reaching pension age to continue in work or, for whatever reason, to choose to defer claiming his state pension entitlement. Should he do so, he will earn extra pension increments as long as he chooses not to claim his pension, up to a maximum of five years. His decision will also affect his wife, in that she likewise will not receive her pension derived from his contributions. In those circumstances, she too will earn increments, but only if she is not receiving any part of her own pension entitlement, including graduated retirement pension. I stress that point, as that is the case with my hon. Friend's constituents.
Central to a contributory benefits policy is the effect of the receipt of one social security benefit on the receipt of another. The arrangements affecting graduated pension and pension increments are consistent with that policy and are supported by logical argument. I remarked earlier that the underlying concept of pension increments is to recognise the situation of individuals who choose not to draw on their entitlement to contributory benefits. It follows that, if any claim to those benefits is made, no extra pension may be earned. As I will now explain more fully, those are the circumstances in which Mr. and Mrs. Howard found themselves.
I hope that hon. Members will not consider it inappropriate if I repeat some of the points made by my hon. Friend in describing the action taken by my Department in Mr. and Mrs. Howard's case. So that the House can fully consider Mrs. Howard's case, it may be useful to outline the circumstances surrounding her claim. Mrs. Howard reached 60 years of age in May 1978. She claimed her entitlement to state pension and was awarded graduated retirement benefit of, as my hon. Friend said, a 456 matter of pence per week to commence on 1 June 1978. Mrs. Howard chose, as many people do in that situation, to receive her payments of graduated pension annually.
Mr. Howard reached 65 years of age on 13 October 1980. In June of that year, my Department issued Mr. Howard with the necessary claims package to enable him to claim, or not claim if he so chose, his state pension. In reply, Mr. Howard said that he wished not to claim his pension from October, but would continue in work beyond pensionable age.
Subsequently, on 28 July 1980, my Department sent a provisional entitlement notice to him. The form contained information about the effect of deferring retirement upon one's pension and also pointed out the effect of a spouse receiving any part of her own pension during the period of deferment. The form included a specific reference to graduated retirement pension.
From correspondence and from what my hon. Friend has said, I am aware that his constituents contest that they received the form BR2101, which contains the information regarding deferment and pension increments. We have of course looked into this carefully and our records confirm that both Mr. and Mrs. Howard were separately sent the relevant documents. Had they not received the forms, they would not know the outcome of the pension application which Mr. Howard had made in June. Routinely, both of them were sent a form, and the issue of those forms was recorded by the Department.
Obviously the Department has a responsibility in administering social security benefits to ensure that information is made available to help customers to make informed decisions—I believe that the Department does everything possible to discharge that responsibility.
My hon. Friend correctly noted that there are provisions which allow my Department to consider making ex gratia payments to compensate for any loss of income. The criteria for making such payments are clear: the onus of proof lies with the claimant to prove that he or she has been misled or misinformed by an official of the Department and, because of this, has suffered a loss of income. If we receive representation that this is the case, as with the case of my hon. Friend's constituents, we examine the circumstances carefully and sympathetically to establish whether there are grounds for considering an ex gratia payment. There are occasions on which the Department has considered itself at fault in cases and has taken the necessary steps to make compensatory ex gratia payments.
We have, of course, given this consideration to the Howards' case. Indeed their case would have been considered each time my hon. Friend sent in the next instalment of the story. However, I am satisfied that, as I have outlined, there are no grounds to support making such a payment. I do not believe that the Department misled or misinformed Mr. and Mrs. Howard. Indeed, according to the Department's records, Mr. and Mrs. Howard were sent notices of entitlement, which informed them of the effect of Mrs. Howard continuing to claim her graduated pension.
My hon. Friend feels that it is unfortunate that an individual who has worked and earned an entitlement to a small sum of graduated pension ends up receiving less than someone who has no entitlement to a pension based upon his or her own contributions. Perhaps it will help the House if I comment briefly on the national insurance fund and graduated contributions.
457 Although graduated contributions were calculated separately from flat rate contributions, it is a mistake to think that they were reserved exclusively for the payment of graduated pensions. Together with flat rate contributions and the Exchequer supplement, they were paid into the national insurance fund from which the full cost of all contributory benefits is met. An individuals' contributions are not invested for his or her own future use or that of their dependants. I know that my hon. Friend understands that the scheme is by its nature redistributive and operates on a "pay-as-you-go" basis, with today's benefits being paid for by today's contributors, who will in turn be supported by the next generation of contributors.
I am also aware that my hon. Friend believes that this case should be resolved so as to leave Mrs. Howard no worse off than she would have been had she not received her graduated pension. As I have already explained, the only mechanism open to the Department is that of ex gratia payments, and I have already explained why that mechanism would be extremely difficult in this case. In any case, I do not believe that such payments would be appropriate where a claimant represents that he or she wishes to reconsider a decision that was made many years earlier.
I reassure my hon. Friend that we have examined every aspect of this case most carefully—again and again. I am sorry that I cannot be more helpful to him today. I also assure him that the good faith of Mr. and Mrs. Howard is not in question; nor has it been questioned at any stage in correspondence between my hon. Friend and the Department. I congratulate him again on the way in which he presented his case. He has allowed the House to discuss the important issues raised.
I regret any case in which individuals feel that they have been unfairly treated. I sympathise with any such individuals, but I am satisfied that, in this case, the Department has acted fairly and impartially in applying the law as it relates to the circumstances of Mr. and Mrs. Howard.
§ Mr. Colin Shepherd
Will my hon. Friend examine the regulations to see whether any improvements can be made, as I requested?
§ Mrs. Shephard
I reassure my hon. Friend that the Department continually reviews and monitors the performance of all its benefits.