HL Deb 18 October 2004 vol 665 cc145-51GC

(1) The Social Security (Widow's Benefit and Retirement Pensions) Regulations 1979 (S.I.1979/642) is amended as follows.

(2) In Regulation 6(1), for "25" substitute "0".

In Regulation 6(2), for "25" substitute "0"."

The noble Lord said: After that brief skirmish, perhaps I may make a few other points about state pensions more generally, before turning to the amendment.

It is clear that general debate on state pensions would not be appropriate in Committee; it is more appropriate on the Floor of the House. As I said the other day, apart from what may be said on Report, it is important that we should have a general debate in the light of the Turner report at an early date. There has been a general appeal in the Turner report and from the Association of British Insurers and others for consensus. My impression is that there is now an almost total consensus among all interested parties with the exception of the Treasury: namely, that there should be an increase in the basic state pension, on the one hand, and a reduction as far as possible in the use of means testing, on the other. Even the Prime Minister, we are told in the press, has come round to the view that means testing on the scale that we now have as a result of the obsessive introduction of every conceivable kind of tax credit is having a serious effect on saving. That was confirmed by the Turner report.

Therefore, I do not want to make a general speech on pensions, but turn to Amendment No. 331, which concerns the reduced rate of pensions to be paid. The principle behind the new clause, which was proposed to us by Age Concern and several other outside interest groups, is that it would be desirable to end the unfair 25 per cent rule, which means that people with fewer than 10 years of full national insurance contributions receive no pension at all in their own name.

It is almost exactly 40 years since I made my maiden speech in another place, which specifically concerned giving pensions to the over-80s, who had been totally excluded from the National Insurance scheme when it was introduced by Beveridge. I made my maiden speech on that subject. I was incredibly fortunate in the ballot shortly afterwards to secure a Private Member's Bill to do justice. It was opposed by the Labour government Front Bench and they filibustered it all through the night until close of play, which cut it off just after midday the following day. But I am happy to say that, when we came to office in 1970, that was the first thing that we did.

So I have some background in this area. In some ways, it is analogous to this situation. Women's pension provision is very inadequate. It has been said that for every £1 a male pensioner in a couple receives from a pension, a woman receives 32p. That is extraordinary. In a similar way to the over-80s, women simply have not been allowed to make up the contributions.

The main argument is costs, and one can understand that. However, some commitment to say that the Government would like to move towards rectifying the rule, with particular reference to not only those who get nothing at all, but part-pensioners generally, would be appropriate. For that reason, I beg to move.

4 p.m.

Lord Oakeshott of Seagrove Bay

Unlike the noble Lord, I do not propose to try to work in any general comments on the state pension. However, while he talked about the consensus from everyone apart from the Treasury, I particularly enjoyed watching the Minister's face. I used to play a lot of poker in my misspent youth, and I congratulate her on giving even less away than usual. We support Amendment No. 331.

Baroness Hollis of Heigham

The regulations that the amendment seeks to adjust prevent any basic state pension being paid where a woman has fewer than 10 qualifying years and a man fewer than 11 qualifying years—fewer, of course, if they have HRP. It is basically a 25 per cent de minimis rule, as the noble Lord clearly explained.

The provision obviously has its roots in the 1948 Beveridge settlement, under which a married woman is essentially expected to become entitled to a basic state pension on her husband's national insurance contributions once he has reached state pension age. In fact, the majority of people that the amendment is intended to help will get a state pension of 60 per cent—well above the 25 per cent de minimis—based on their husbands' national insurance contributions once the husbands reach state pension age.

The first concern is that, in practice, the amendment would help "wives in waiting"—those who are younger and will not yet draw down the 60 per cent because their husbands have not met state retirement age. That issue will itself reduce from 2010 on, as pension ages equalise for men and women. The second concern—it is serious—is administrative.

Lord Higgins

I did not quite understand the noble Baroness's point. Why does the equalisation of pensions solve the problem?

Baroness Hollis of Heigham

We presume—it is increasingly not the case—that most women affected are married. Most married women would currently retire from work at 60. Their basic state pension in their own right, including any category A pension—that is what we are talking about—would be available to them at 60, but they would not be able to draw a husband's basic state pension of 60 per cent until he was entitled himself to draw his own BSP, which is when he is 65. If she were two or three years younger than him, she would have to wait until he was 65 before she was entitled to 60 per cent.

There is therefore a period in which the noble Lord's amendment on the category A pension would cover the gap between a woman's leaving the labour market and her drawing a basic state pension by virtue of her husband's contributions. I used the phrase "wives in waiting" as a colloquialism. When that age begins to equalise from 2010, the issue will be lessened because she would not be entitled to draw the pension either until she was 65—the same age as him. At that point, even if she had 25 per cent, she would not stand to gain unless her own category A pension was more generous than the category B pension that she would get from him.

Lord Higgins

One could not say that she waits just as long but does not know it?

Baroness Hollis of Heigham

It depends on when she leaves the labour market. She would not be entitled to a category A pension until she herself was of retirement age, which, by 2020, would be 65.

The second consideration is the administrative one, a point that goes to many of the amendments, from LEL to carer's leave. I have done a lot of work on this issue as I was interested to see how far we could take it and how far we could bring women into the framework of an adequate basic state pension. In this case the Government would be paying very small amounts of basic state pension—perhaps one or two years' worth—which might generate £2, so that one was paying out £2 or £4 a week because someone had two years' worth of entitlement. It is possible that people would not actually benefit from that because any extra gained in the state pension could reduce the amount of pension credit paid, which is the guarantee element. So we have no plans to abolish the rule. However, I recognise the problems that the issue generates and some of the thinking behind it.

Society is changing. All of us have engaged in that debate. However—to use a phrase to which we often have recourse, but it is more relevant here than on most occasions—I do not think the time is right for this amendment. During the Bill's Committee stage in another place, my right honourable friend the Minister for Pensions, Malcolm Wicks, committed the department to publishing a report in 2005 on the pension position of women. I do not doubt that that will take further some of the issues raised by the Turner report. Before that, we will be looking at a number of areas relating to the pensions position of women and what we can do to improve it. I do not want to preempt that at this stage.

The interlocking of issues such as addressing the 25 per cent rule and some of those raised by the EOC and Fawcett, such as whether the LEL and the carers' trigger for those looking after older people on DLA should be reduced, add ever more complexity to the basic state pension without ensuring that everyone receives an adequate pension in retirement in that format.

I absolutely accept the intellectual argument behind the amendment—that women will have earned this and the de minimis is too high, particularly as more women will not be protected by the 60 per cent pension rule. And although there is a cost element, I am not using that as a basis for urging that the amendment not be pressed. I am urging it on the basis of complexity and the fact that this should be one of a number of issues—as I suspect I will be saying in response to quite a number of these amendments—that should be taken on board coherently together. I expect that we will do that as we respond to the commitment made by my right honourable friend in another place. With that explanation, I hope the noble Lord will feel able to withdraw the amendment.

Baroness Barker

The noble Baroness cited administrative complexity in her argument. No doubt like other Members of the Committee, I listened yesterday to her talking on Radio 4 about the report on computer systems at the Department for Work and Pensions. Can she say whether administrative complexity will form part of that report? It seems to me that women who—as she has lectured us often enough—worked for fewer years, for lesser sums and for a number of different employers will always be most at risk of having a number of different, small pension entitlements from different places. As we know, women constitute by far the largest number of potential beneficiaries of the pension credit. I think they also constitute the greatest number of those who do not take up the pension credit, as many of them have only smaller sums to gain.

What the noble Baroness says is perhaps right. However, I think the key issue is not complexity for the Government but complexity for pensioners, particularly women pensioners. It is not normal for reports from the noble Baroness's department to talk much about administrative complexity, but I hope that this one will.

Baroness Hollis of Heigham

I take that point. Consideration of what that report may cover is at a very early stage. It has been very much influenced by the Adair Turner debate and the response it is generating. But I shall certainly take the point away; it is well made.

Lord Higgins

I am grateful to the noble Baroness for that reply. So far as concerns administrative complexity, it is a strange argument coming from a government that have introduced as much means testing and so on as they have.

As to costs, presumably a number of people who might benefit from the amendment are anyway on means-tested benefit and it would not involve any extra costs as far as that group is concerned.

Baroness Hollis of Heigham

If the noble Lord will allow me to intervene, I can put the costs on to the record, although it is not really where I was coming from. With wives-in-waiting, female partners, some people abroad and so on, the annual cost could be, I say advisedly, up to £100 million a year. We do not have records on a number of people because of their contributions and so on. If one was to make it retrospective, one could be talking about £400 million.

Lord Higgins

Yes. And that is taking into account the fact that many of them will be on means-tested benefits?

Baroness Hollis of Heigham

My understanding is that these figures are gross.

Lord Higgins

Gross? So the net figure could be substantially less. That is the answer as I understand it.

Baroness Hollis of Heigham

Yes.

Lord Higgins

Yes?

Baroness Hollis of Heigham

I was just confirming that my understanding is that these figures have to be gross. The noble Lord is exactly right.

Lord Higgins

The other matter concerns a point we were making in a slightly different context the other day. The Government have gone a long way towards conceding the argument but have not made a decision, although they say they are thinking about it. Again, I would have thought that the need to take a long while making this decision is somewhat doubtful. I hope that by Report or Third Reading we will receive a rather more definitive answer than we have had so far. The arguments are known; the costs are known; everything about it is known. It is just a question of taking the plunge, if I may put it that way.

I shall not press the matter now but I hope the noble Baroness will think about it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 283 [Deferral of retirement pensions and shared additional pensions]:

On Question, Whether Clause 283 shall stand part of the Bill?

Lord Higgins

I make only one point. The Government have given a great deal of publicity to this issue, arguing that people can get more if they defer their pensions and so on. However, I am slightly concerned about the administrative side, the extent to which the pension will he increased and what will be the basis of increasing the pension. Presumably it will be on the argument, "You have deferred your pension. As a result of that we will not have been paying you for one, two or three years", or whatever. "Therefore, because you would otherwise have been getting interest on it, we will pay you rather more". There is an implicit rate of interest involved and I am not sure what that will be. Perhaps the noble Baroness will tell us.

I can speak personally about another matter which really worries me. A member of my own family decided to defer their pension—despite my suggesting that it was not worthwhile—and they did so for a year. They then said that they would like it paid, but it took them another year to get it paid. The problems with the computers and so on in the department are well known, but that does seem quite strange. One would hope that whatever interest or increase is allowed, it will be up to the date when it is actually paid and not the date when the person asks to have it deferred.

Baroness Hollis of Heigham

In response to the first point of the noble Lord, Clause 283 does two things.

First, it continues the existing policy of increments—that is, if you defer drawing the state pension you obviously get a higher state pension as a result.

As to the noble Lord's point about the rates of interest, the changes will increase the accrual rate for increments from 7.5 per cent a year to 10.4 per cent a year and remove the current limit from the length of time in which a person may enhance their pension by deferring. That means that the cross-over period, if you like, at which point it becomes actuarially advantaged reduces from about, on average, 13 years to about, on average, 10. So it becomes a better buy, particularly for women, who are likely to live longer.

The second thing provided by this clause is that of giving people the option, the default option, of turning the money into a lump sum paid up front. That is new. For many people, if they have concerns about their longevity and they do not want to take the inevitable small gamble associated with that, or would welcome for perhaps the first time in their lives a substantial lump sum, they will have the possibility of taking this option.

I take the point made about potential complexity, but the complications will lie mainly in the increments, which are already well established even though we may be slow. We are seeking to make the increments more generous, as well as to introduce the option of a lump sum. Thus it is entirely benign on both fronts and will, I hope, be welcomed by noble Lords.

Lord Higgins

When the noble Baroness says "substantial", what kind of figure are we talking about?

Baroness Hollis of Heigham

It could be £30,000 to £40,000.

Lord Higgins

I am grateful for that surprising reply, and I would not wish to pursue the matter further—

Baroness Hollis of Heigham

I assume that the noble Lord is referring to the potential size of the lump sum. If that is the case, the figures I cited could well be achieved if someone defers their pension for four or five years.

Lord Higgins

I am grateful to the noble Baroness for her response.

Clause 283 agreed to.

4.15 p.m.

Schedule 11 [Deferral of retirement pensions and shared additional pensions]:

Baroness Barker moved Amendment No. 332:

Page 296, line 5, leave out paragraphs 9 to 11 and insert— 9 After paragraph 3B (inserted by paragraph 8 of this Schedule) insert—