Inherited SERPS (Hansard, 15 March 2000)

HL Deb 15 March 2000 vol 610 cc1608-19 1608

§ 6.56 p.m.

§ The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham)
My Lords, with the leave of the House, I shall now repeat a Statement on inherited SERPS which is being made in another place by my right honourable friend the Secretary of State for Social Security. The Statement is as follows:
"With permission, Madam Speaker, I would like to make a Statement on entitlement to inherited SERPS.
"Fourteen years ago, the last government made a series of pensions policy changes, which they took through Parliament. One of those changes meant that, from this April, a husband or wife could inherit a maximum of one-half of their spouse's SERPS entitlement.
1609 "The department published the correct information for about a year after the policy change. Pensions professionals also knew about the change. But it is clear that from early 1987 to 1996 DSS information leaflets were issued that did not refer to it.
"It is also clear that wrong information was given to a number of people by some Benefits Agency staff during this period, and for some time after that. There is no doubt that as a result a number of people were misled, and so could have lost out.
"The giving of wrong information by a government department is inexcusable. There is a clear responsibility to ensure that the information provided is accurate and complete. In this case, it was not; and, what is more, even the serious implications of giving the wrong information were not appreciated by the department. This should never have happened. The last government should have sorted this out years ago.
"Three reports are being published today. First, the ombudsman has investigated four sample complaints. Secondly, the Comptroller and Auditor General is publishing his report on what happened and the action needed to prevent a repetition. Thirdly, the NAO, at my request, also carried out a joint review with internal audit, of the DSS management during the relevant period.
Together, these reports provide a damning indictment of what happened over these years. All those reports will be available in the Library and Vote Office.
"I intend to accept all the recommendations made by the NAO and the ombudsman; and, I can tell the House, I propose to go further in two respects. I will, of course, respond to any additional recommendations that might arise from any subsequent PAC or Select Committee investigation.
"I will turn in a moment to the steps I am taking to make sure that this does not happen again. But first I want to set out my proposals to provide redress for those who lost out.
"First, there are certain groups who cannot be affected in any way. These include people who would have retired before SERPS was introduced, single and divorced people, and those who have already been widowed.
"Secondly, the policy change due to come into force this April will not come in until 6th October 2002, in two and a half years' time. Because of that, anyone who is widowed before October 2002 will not be affected. Their spouses will still be entitled to inherited SERPS under the current rules.
"Thirdly, we will also provide redress for those people who were wrongly informed and who, had they known the true position, might have made different arrangements.
"Let me tell the House how Ministers have approached this matter. As a matter of principle, we believe that when someone loses out because they were given the wrong information by a government 1610 department, they are entitled to redress. In applying that principle, Ministers considered two options: first, deferral for up to 14 years; and secondly, a protected rights scheme. We want to ensure that everyone who has been misled and lost out gets redress. Deferral alone does not solve the problem.
"Take, for example, a 65 year-old today who was previously given the wrong information. If he dies at, say, 80, his widow has still lost out, but that is not what he was told would happen. We think that she must have access to redress. Deferral has not provided a solution for this couple.
"Someone who got the correct information and spent money buying alternative arrangements would feel aggrieved if it now turns out that he need not have done so.
"However, a protected rights scheme does provide redress. No one, including people already retired, who was misinformed, and who might have acted differently had they had the correct information, need lose out. Therefore, I am setting up an Inherited SERPS Scheme.
"The scheme will allow individuals to apply to have their current rights to inheritance of SERPS preserved. To be eligible to apply, applicants must be married, must have paid national insurance contributions since 1978, and must have been misinformed after 1986.
"The NAO report identifies a number of criteria considered essential to the success of the scheme. I agree with those recommendations. The scheme will be well publicised. We will consult widely. And crucially, we will not proceed with processing applications from the public until we are satisfied that they can be dealt with effectively.
"Postponing implementation of the policy for everyone will also allow time for claims to the scheme to be made and processed. Because I do not consider that the Benefits Agency has the capacity to deal with this work, we will set up a separate unit specially for the purpose.
"We will consult the appropriate interested bodies on the delivery of the scheme, including the ombudsman and the National Audit Office. We are also writing to a number of interested organisations today.
"In working out the details for this scheme, there is an obligation on the Government to ensure that we have a system to get money to those who have lost out, just as there is an obligation on individuals to tell the truth.
"I shall put before the House the full details of the Inherited SERPS Scheme, including what information we will require from those wishing to claim and the procedures that will be followed to scrutinise those claims. The NAO and the ombudsman will be fully involved in developing these procedures.
"I am setting up a helpline for anyone who is concerned. Advertisements over the next few days will publicise its number, 0845 600 6116. It opens 1611 tomorrow at 7 a.m. I am also writing to all right honourable and honourable Members today, setting out our proposals.
"I have set out my proposals to put matters right for those people affected. But I also want to prevent this problem happening again. The crux of this problem was that there was no clear line of accountability for ensuring that the policy changes were properly implemented, or that information provided to the public was accurate and complete. It is symptomatic of a wider problem I had already identified in the department. It was not focused on the people it was meant to serve—in this case, on pensioners—both today's and tomorrow's.
"I have already begun the process of change, focusing the department on its key client groups: children, working age and pensioners. We need to give a better, dedicated service to pensioners. I am already setting up a modern service, with modern communications, so that pensioners can get information and advice on both pensions and benefits available to them.
"Today I can announce the next step. I am bringing together policy and operational responsibility for pensions under a single organisation, distinct from the Benefits Agency. This new organisation will be solely focused on the needs of pensioners and pensions policy. It will deal with everything from policy development to frontline service delivery, from changes in the law to changes in the leaflets.
"We also have a responsibility to provide clear information to the public. We have already tightened up the procedures for checking leaflets and guidance, but we need to do more. The public rely on government information. They are entitled to be reassured that leaflets are accurate and comprehensive. But I believe that all our leaflets should be subject to external independent audit. This should include consultation with others to ensure that all DSS leaflets are written in plain English. I have therefore asked the Social Security Advisory Committee, which is an independent statutory body, to do this.
"This failure was deplorable. It should not have happened; and it will cost a minimum of £2.5 billion to put it right. How much more than that depends on the number of successful claims.
"We are deferring this change for two and a half years. We are making sure that people do not lose out because they got the wrong information. We are making root and branch reforms of the DSS. In future, DSS leaflets will be subject to external audit, so that people can rely on clear and accurate information.
"The last Conservative government have to take responsibility for the mess they created. I will take responsibility for clearing it up. I commend the Statement to the House".

§ My Lords, that concludes the Statement.

1612

§ 7.7 p.m.

§ Lord Higgins
My Lords, the House will be grateful to the noble Baroness for repeating the Statement made in another place, not least because, when dealing with this issue last year in the course of the passage of the related Bill, this House played an important role in the effort to find a solution. Indeed, the Government's variation on the amendment tabled by the noble Lord, Lord Rix, in this House forms the statutory basis for what the Government are now proposing. For that reason, we are grateful to the noble Baroness.
However, I rather regret the final part of the peroration of the Statement—if, indeed, a Statement can have a peroration—which was perhaps more suited to another place than to this House. Throughout these proceedings—

§ Baroness Hollis of Heigham
My Lords, it is the responsibility of the Minister in this House to repeat word for word a Statement made in the other place.

§ Lord Higgins
My Lords, I accept that entirely. However, I merely observe that it was unfortunate for the noble Baroness to be put in that position. She will know of course that we on this side of the House have accepted throughout the proceedings that this was a piece of maladministration by the previous government which was then continued or perpetuated by the present Government. The fact that that is so is a responsibility for both governments. Indeed, it is deeply regrettable and we all understand that that is the case.
It is now important to find the right solution. Certainly, we on these Benches welcome what has been proposed to prevent a recurrence of what must be perhaps the worst example of maladministration that has ever taken place. I suspect that it will prove to be the most expensive.
I should perhaps mention one other point; that is, that there has been a plethora of press comment on this topic over the past two days. It does not bear precise relationship to what the noble Baroness read out. It would not appear to be a leak. But it looks like a classic Treasury case of softening up what is to come by saying that everything is going to be absolutely awful and then what actually happens is rather less. Perhaps the Minister will give the House an assurance that none of those stories originated from either her department or the Treasury.
We are helped in these matters by the reports of the NAO and the ombudsman. I want to ask questions about both of those. I am surprised that the ombudsman's report has taken so long. It would have been helpful to have had it much earlier in our proceedings. I do not understand why it was necessary for the ombudsman to take from March 1999 to March 2000 to produce this document. However, he makes a number of points which are helpful.
Similarly, the National Audit Office report is helpful. But the timing seems rather odd. At page 8 of the NAO report it says that the ombudsman reported his findings to Parliament in March 2000. But the 1613 report was only authorised to be printed today. Later, at paragraph 2.19, it states that in March 2000 the Secretary of State for Social Security "announced" a government decision to set up a preserved rights scheme, and then goes into great detail. It seems odd to have the three reports published simultaneously and yet for one to include information which was not available at the time the report was printed. Perhaps the noble Baroness can give us some indication of how that comes about.
I turn to the two crucial points made in the ombudsman's report. I apologise, in the light of the earlier exchanges in the House, for reading a lengthy paragraph from the report, but it is the best way of dealing with the matter. The ombudsman's report says, as part of a recommendation made to the Permanent Secretary, individuals who claim to have been misled or misdirected by information given by a department are normally expected to provide some evidence that they have been misled into acting, or failing to act, in a way that has been to their disadvantage. Only then is compensation considered. However, I questioned whether that approach was tenable in the circumstances of the complaints being referred to me. As I saw it, anyone who had read the relevant DSS leaflets [I stress 'anyone.] might reasonably claim to have been misled by them. Whatever such a person then did or did not do, it seemed to me that the burden of proof that he or she would not have acted differently had he or she not been misinformed rested on the department". The ombudsman then continues, I therefore considered that, whatever the approach the department decided upon in order to make good the effects of their maladministration, it would need to be capable of providing due redress on a global, rather than an individual, basis". The Statement the noble Baroness read out says that the Government accept the ombudsman's recommendations. That is not my understanding of what is proposed. It is not proposed that there should be a global settlement for everyone who may have been affected simply because they read the leaflets issued by the department. On the contrary, what is proposed is a system of protected rights.
We welcome the fact that the Government are proposing to delay the whole matter for two-and-a-half years because the deadline for all this is the beginning of April and the Statement, this report and the NAO report are all up against that deadline. So we welcome that deferment. But perhaps the noble Baroness can clarify one point in that regard. She says that the minimum cost of the operation would be £2.5 billion. Is that simply the cost of deferment and will the rest then be on top of it? I am not clear about that.
Despite the Statement, the Government do not appear to accept what the ombudsman says about a global settlement; on the contrary, they are proposing a protected rights scheme. That brings us to the question of the burden of proof. The paragraph I read perhaps confuses both issues, so let me turn to that question.
This issue came up clearly in the debates we had in this House on 6th July 1999 when the noble Baroness said, 1614 There is a very real issue of proof. The noble Lord, Lord Rix, asked me about telephone calls. No record is kept of telephone calls, any more than a record is normally kept of conversations at the desk. Paper records arc kept for about six months. But if someone asserted that he had received that misleading advice, I suspect it may well be the case that the Government would have to prove that he had not, rather than the contrary, because there would be no evidence to counterbalance it".—[Col. 847.] That is reflected in the ombudsman's report when he says that the burden of proof is to be on the department rather than on the individual concerned.
So we are left in a difficult position. First, it may be that someone has been misled simply because they read the leaflet, whereas the Government are now proposing, if I understand it correctly, that the individuals who feel that they have been misled and lost out as a result of that because they did not make proper pension arrangements will have to go through procedures where they say "I wrote to the department. The department gave me the wrong information" or "I telephoned the department"; and yet there is no such evidence. If there is no evidence but an assertion is made by an individual, on what basis will the department reject such applications? Clearly, this is an important issue and it is not the least bit clear either from the Statement or otherwise what the Government intend to do. It ought to be clarified at this stage.
I have one final point. The noble Baroness's reaction when this matter first arose in this House, in answer to a parliamentary Question from myself, was that she was going to take legal advice. Can she tell us what the legal position is now in the light of what the Government are now proposing? If people do not like what the Government propose, can they still take legal action?
These are technical matters. They are of deep consequence to many people. It is hoped that we can find a satisfactory solution to them. For the reasons I mentioned, it is not at all clear at the moment what the Government's solution is, let alone what the right answer is.

§ 7.17 p.m.

§ Lord Goodhart
My Lords, we too are grateful to the noble Baroness for repeating this Statement on this occasion. I begin my saying that we strongly support the proposal to set up a new pensions directorate to take operational responsibilities and actions out of the Benefits Agency and to have a single dedicated body to deal with those matters. In saying that, I ask the noble Baroness whether she will confirm that benefits such as housing benefit, which goes to both pensioners and non-pensioners, will stay with the Benefits Agency.
The widows' SERPS issue was first raised in Parliament by my right honourable friend in another place, Mr. David Rendel, in November 1998. It was then debated extensively during the passage through your Lordships' House of the Welfare Reform and Pensions Bill in the previous Session; indeed, the last occasion on which it was debated was 8th November last year when your Lordships considered the Commons amendments. On that occasion the House accepted the revised version of an amendment 1615 originally moved by the noble Lord, Lord Rix, who played such an effective part in raising and obtaining a solution to this issue.
That amendment gave the Government three options: first, to increase the surviving spouse's rights to a rate of more than 50 per cent where the contributor died after 5th April this year (that option has been clearly rejected by the Government); secondly, to defer the commencement of the reduction to a date after 5th April; thirdly, to provide a compensation scheme for those who can prove that they acted in reliance on incorrect advice from a government department. What the Government now propose is a combination of the last two options.
I should just point out that in the course of that debate the noble Baroness said that she was unable to announce a decision on the preferred course of action, but added that the Government would make a further announcement "soon". I have to say that it is now more than four months on, with only three weeks to go until the original changeover date, and, therefore, I find it difficult to regard that as being "soon".
We, too, welcome the deferment of the changeover for a further period of two-and-a-half years. But, after that, the Government have chosen an option which may well severely restrict the number of people who can in fact claim. I note that the National Audit Office has indicated that there is a very wide range of possibilities as to what this will cost. I certainly suspect that the number of people who can prove reliance on incorrect advice to anything like the standards that a court would require will be small. The truth of the matter is that this is not just a problem for those who asked a question and received the wrong answer.
The change in the rates of the spouse's SERPS should have been flagged up and printed in very large bold type. Both the present Government and the previous one—the latter even more so because they were responsible for a longer period—should have gone out of their way to publicise the approaching change. That publicity should have said: "You should be aware that if you die after 5th April 2000 your spouse will get only half your pension. Therefore, you need to consider taking action now to protect your spouse's income if he or she survives you".
There are probably plenty of people who did not ask the DSS about it. But if the cut in the spouse's pension had been brought to their attention, they would have done something about the situation. I recognise that an effective remedy is likely to be extremely expensive. However, I believe that it is essential to provide redress, especially for those who are now over or close to pensionable age and who are no longer able to take out a personal pension to make good the shortfall in SERPS for their spouse.
There are important recommendations in the ombudsman's report. The noble Lord, Lord Higgins, drew our attention to one of them, which appears in paragraph 32. I should like to refer to paragraph 41 of the report, where the ombudsman says that his proposals, 1616 will also need to take account of the fact that most of those misled by DSS or BA are likely as a result to have decided that no action on their part was needed, because they had been led to believe that a surviving spouse was secure in an entitlement to full inheritable SERPS. In view of that, it would be wrong to exclude from redress those who took no action: and the proposals will need to recognise that it will be difficult, and in some cases impossible, for claimants to demonstrate that they would have taken a particular course of action had they been correctly advised. The scheme should also, in my view, recognise that many people will have been misled solely by reading inaccurate leaflets, and will have received no further wrong advice, written or otherwise, from DSS or BA. They will need to be catered for in any proposals". Therefore, can the Minister say whether the Government accept the full recommendations of the ombudsman as set out in paragraphs 32 and 41 of his excellent report?

§ 7.23 p.m.

§ Baroness Hollis of Heigham
My Lords, I am grateful for the responses from both noble Lords. I especially welcome the response from the noble Lord, Lord Goodhart, to the proposed administrative changes. I believe that they are our best assurance against such calamities happening again. The noble Lord, Lord Higgins, may well be right to say that, so far as concerns government policy, this has been one of the worst and certainly one of the most expensive errors. However, I must disagree with him in one respect. I do not think that it is just a question of saying that his government were in office for 17 years and ours has been in for three—yah-boo!
The previous administration was responsible for the change in policy. If you change policy, you have an additional responsibility to ensure that those who may be affected by it know about it. That is our complaint. We are not suggesting that there was any conspiracy here. The previous administration perfectly properly and openly debated those changes through Parliament, but then failed not only to ensure that people knew about them but also continued to publicise and print leaflets suggesting the contrary. That seems to me to be a very different situation from one where a new administration comes into office and is looking at an entire waterfront of proposals—for example, the New Deal, child poverty, pension reform and the like—and then discovers a year or so into that term that errant leaflets and errant advice based on a previous government's administration are still being perpetuated.
I am glad that the noble Lord accepts responsibility for that situation. However, I believe that it is even worse than he suggested. Any government who change policies that affect the lives of so many people have a double obligation to make sure that they know about the change and, therefore, do not suffer further disadvantage—

§ Lord Higgins
My Lords, perhaps the noble Baroness will also accept that the present Government cannot totally avoid responsibility either!

§ Baroness Hollis of Heigham
On the contrary, my Lords. We took action as soon as the matter was brought to our attention. However, it has taken some 1617 time because we are dealing with sums of money that may well amount to many billions of pounds. As soon as we were made aware of the situation, we acted. None the less, the responsibility to act in the first place was clearly that of the government introducing the policy change. That is undeniable.
The noble Lord also asked where these stories in the press originated. I should like to assure the noble Lord that, to the best of my knowledge, none of them originated in the DSS; but, beyond that, I am simply not in a position to speculate. I can only speak for my department and say that none of these stories came from the DSS.
I turn now to the questions about paragraphs 32 and 41 of the ombudsman's report and about a global response. The noble Lord, Lord Higgins, suggested that the Government's response was not "global". I disagree with him; it seems to me that we are meeting what the ombudsman is calling for. I believe that he was thinking about an individual scheme. He was worried that each individual would have to take separate action, separately argue the case and then receive separately assessed compensation, according to the degree of separate financial loss that may be calculated. No. As opposed to that, we are producing an inherited rights scheme. If anyone can show that he was misled and suffered detriment as a consequence, he will have 100 per cent protected SERPS. That seems to me to be an understanding of what is meant by a "global response"; that is to say, one that is not individually tailored, if I may put it that way, to deal with questions about individual compensation and how much individual loss has been sustained. In that sense, I believe that we are meeting the ombudsman's requirements in paragraph 32—

§ Lord Higgins
My Lords, I apologise for interrupting the noble Baroness again, but this issue, together with the question of proof, is really the crux of the matter. As regards both paragraphs of the report, I find great difficulty in accepting the interpretation that the noble Baroness has put forward. However, as there is confusion, perhaps we could ask the ombudsman what he meant.

§ Baroness Hollis of Heigham
My Lords, the noble Lord is entitled to ask the ombudsman whatever he wishes. I do not know whether the noble Lord is saying that a "global response" would be a case of simply reversing the changes and that anything short of that is not global. We are saying that anyone who was misled and did not know about the changes and who therefore suffered detriment will have his rights protected. That seems to me to be "global", as opposed to being "individually tailored". But I do not think that we can go much beyond that point. That is certainly my understanding of the situation.
The noble Lord, Lord Higgins, asked whether the minimum cost of £2.5 billion referred to the two-and-half-year delay. The answer is yes. Both noble Lords pressed me further about the burden of proof issue. Perhaps I may refer to the very clear words of my right honourable friend in the other place. People will be 1618 required to give us information when they make a claim as to how they were misled. We will ask them questions about this when we process the claim. Where there is no documentary evidence, it will be for the department to challenge or disprove the claim. What will count as evidence in this case will be spelled out in the affirmative regulations that will be brought to the House in due course.
Finally, I believe both noble Lords asked what sort of legal action is potentially available to someone who is dissatisfied with his situation. Such a person would indeed have access to a legal remedy. He can appeal and take his case to the tribunals. I hope that I have answered the questions raised by both noble Lords.

§ Baroness Greengross
My Lords, I congratulate the Minister on recognising a very difficult situation which potentially affects millions of people who are very concerned about their spouses' future financial situation if they should die first. I am sorry that my noble friend Lord Rix could not be present this evening. He has undertaken a great deal of work and campaigned tirelessly on behalf of widows.
I have to declare a certain interest wearing my other hat of Age Concern, as we have also been campaigning for about 18 months. I am pleased that the Government are taking responsibility for what is a very difficult problem, a problem not of their making, in setting up this new sub-ministry to deal with pensions and pensions issues.
Deferring the whole issue for two-and-a-half years does give some breathing space, although for many people there will still be a period of great uncertainty and worries. The Government have, as I have acknowledged, a very difficult task. There are still worries about how the scheme will work in practice and whether all the individuals affected by this really dreadful situation will find that their spouses' financial position will be secure.
The Government have said that they will publicise the scheme and set up the very welcome helpline. However, experience does tell us that many people, particularly old people, do not like making claims, particularly in situations where they have to declare their personal financial situation and sustaining the onus of proof is therefore very difficult for many of them. The only way to overcome that problem would be to contact all SERPS contributors or pensioners or both.
Will the Minister give an assurance that people who did not specifically receive misleading information on an individual basis from the Benefits Agency but who assumed the situation had not changed or relied on the written leaflets which we know were incorrect will be in some way protected?

§ Baroness Hollis of Heigham
My Lords, I am very glad to see the noble Baroness, Lady Greengross, in her place and delighted that she felt able to give such supportive remarks to our proposals. She and Age Concern, together with the noble Lord, Lord Rix—who has sent his apologies, as he would very much 1619 have wished to be here, as would many other noble Lords had they known earlier that this Statement would be made today—have been very important players in bringing this issue to the notice of this House, Parliament and Government. The noble Baroness can well take some pride in the role that she and her organisation have played in this matter.
The noble Baroness asked specifically about how we would ensure that those who were misled or who may have suffered detriment as a result will know about it. A helpline will open tomorrow and there will be advertising. One of the key areas that we will want to be discussing with the organisations, including Age Concern, is precisely how we reach all of those who may have been affected by the Government's proposals. We hope very much to draw on the expertise of the noble Baroness and her organisation in that very matter.

§ Lord Desai
My Lords, I too welcome the Statement. I welcome the setting up of a separate directorate and separate sub-department. Owing to the somewhat misleading stories in newspapers which have been mentioned already, will the Minister give an assurance that all the people affected by this absolutely awful scandal—the public pensions scandal to accompany the private pensions scandal in those years when the party opposite ruled the country—will be looked after and that there will not be any lingering doubt in our minds that people are paying for others' mistakes?

§ Baroness Hollis of Heigham
My Lords, the change came into effect in 1986. At that point, for a year or so, correct information was circulated. In addition, some professional pension advisers knew of those changes—they had obviously followed the parliamentary proceedings and the like. We have every reason to think that they gave correct advice and the people reading those pamphlets would have had correct advice about the situation and were then in a position to make an informed choice as to what, if anything, they did about it. In my view, such people obviously have no entitlement to compensation because they are in exactly the same position as anybody else experiencing a change in the law and they have of course the full 14 years to change the circumstances.
What we are seeking to ensure is that anyone who was misled by the department and, as a result, suffered detriment should be fully and properly compensated for that failure by the department. On reflection, we thought that the best way of doing that was frankly to protect their rights to the 100 per cent SERPS as though that change had not been made. Had we gone down the other route, which was to reduce the deferral from 14 years, which we also considered, it would have been a lottery as to when someone died. We thought that this was therefore the fairer way in the circumstances, as it recognised the obligation of government to redress a wrong committed by government which was their failure to publicise the issue properly to those affected.