Inherited SERPS

HL Deb 29 November 2000 vol 619 cc1357-67

4.50 p.m.

The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham)

My Lords, I would like to repeat a Statement on inherited SERPS. The Statement is as follows:

"In my Statement to the House of 15th March this year I explained how millions of people were given wrong, misleading or incomplete information about rule changes introduced by the last government in 1986 which were due to come into effect earlier this year. As I told the House then, as a matter of principle when someone loses out because they were given the wrong information by a government department, they are entitled to expect the Government to put it right.

"In March, I announced that we would defer any changes in the inheritance rules by two-and-a-half years until 6th October 2002. That remains the position. I also said that I would consult the ombudsman, the National Audit Office and others on a protected rights scheme which was designed to provide redress to people who were given wrong or incomplete information. I have received a range of helpful and constructive representations from Members of this House, Select Committees and others. I have also received the advice of the Social Security Advisory Committee, whose report I am publishing today. Copies will be available in the Library and the Vote Office.

"As I have said before, the solution to this problem has to be both fair and workable and, as the ombudsman has said, it must provide a global remedy. I am determined to make sure that we do that. Over the past few months, I have become increasingly convinced that a protected rights scheme would not work in the way intended and therefore would not provide a fair and just solution to this problem. It would not be fair because we cannot be sure that it would reach all those affected, particularly the very elderly and vulnerable. It would be very difficult to safeguard the scheme against fraud and abuse. Its operation would inevitably cause injustice, and on that basis I do not intend to pursue it.

"There were two key problems with the decisions taken 14 years ago by the last Conservative government. First, they decided to implement the changes without any transitional arrangements. What is worse, they continued for years to give out wrong, misleading and incomplete information about what they planned to do. We have already deferred the change in the inheritance rules until 6th October 2002. No one at all will be affected by the policy change before that date.

"The proposals I am making today are designed to give full protection to every pensioner; to give younger people adequate notice of the change to SERPS rules; and to provide transitional arrangements for those approaching retirement age. First, men and women who are already over the state pension age cannot do anything to restore their position. I have therefore decided that all men and women who are over state pension age on 5th October 2002 will be exempt from the changes. That means every pensioner will keep their existing entitlement.

"Secondly, proper notice has to be given to those who are planning for their retirement. So I am proposing that the new rules will only apply to men and women who are now 10 years or more: away from their state pension age.

"Thirdly, those people who are approaching state pension age will have less time to plan for their retirement. So for those who are within 10 years of their state pension age, we will phase in the changes. For example, people who reach state pension age between 2002 and 2004 will be able to pass on 90 per cent of their SERPS; those reaching pension age between 2004 and 2006 will pass on up to 30 per cent, and so on.

"We intend to bring forward regulations in the new year to implement these changes and we will consult on the draft regulations in the usual way. We will also write this week to all those people who have contacted us already to set out the position.

"There is of course a very small number of people who have evidence that they were clearly misinformed by the department. For example, they have a letter from the Benefits Agency containing the wrong information. This small group will have access to the usual departmental procedures that deal with cases of maladministration to the extent that the proposals I am announcing today do not fully compensate them already.

"I have already taken steps to prevent this happening again. As I told the House in March, I am reorganising the DSS so that it can better serve its key customer groups. I am bringing together policy and operational responsibility into a single organisation dedicated to pensioners.

"As part of that process, we have already tightened up the procedures for checking leaflets and guidance. I want to ensure that in future people are told about changes in pension policy so they can plan for their retirement in full knowledge of their position. That is why, next year, we will begin to send out combined pension statements giving people more comprehensive information on their entitlements.

"The proposals I am making today will clear up the mess we inherited. Everybody who has reached state pension age in October 2002 will be unaffected by the new rules. My announcement today will remove any worry for pensioners about providing for their spouse. For men and women who are more than 10 years away from state pension age we are giving them the proper notice to which they are entitled. For those within 10 years of their state pension age we will phase in the changes.

"Due to the timing of these changes the costs will be comparable over the next three years. The reforms I have announced today will cost around an extra £1.5 billion over 10 years and an extra £4 billion over 50 years.

"This problem should have been sorted out 14 years ago. What happened in the years after 1986 was a series of colossal blunders which were inexcusable and caused untold distress to millions of people. The then Conservative government have to take full responsibility for what happened. We are now taking the responsibility for sorting it out. I commend this statement to the House."

My Lords, that concludes the Statement.

4.57 p.m.

Lord Higgins

My Lords, the House will be grateful to the Minister for repeating the Statement which was made in another place by the Secretary of State. This whole problem has been described as the most expensive act of maladministration since the war. I believe that it is probably true to say that it is the most expensive act of maladministration ever. It has been an extremely long-running saga. That saga is given in very great detail by the report of the Commons Select Committee on Public Administration entitled Administrative Failure: Inherited Serps published only a few days ago. When I first saw on the Annunciator that there was to be a Statement, I assumed that it would be a response by the Minister to that report. In fact, I now understand why it is not mentioned.

I very much regret the tone of the Minister's Statement in the other place; I do not refer to the Minister in this place. Discussions on this matter have shown that we on this side fully recognised responsibility for what happened in our period in office. But we have also recognised, as I believed the Minister had done, that there was a responsibility on the other side as well. That is set out very clearly indeed in the report to which I have just referred. It states: We believe that the failure of the department between 1996 and 1999 to take adequate action to inform their staff and the public perpetuated an already unsatisfactory situation". So we do not accept what the Minister said in her final words, that then then Conservative government have to take full responsibility for what has happened.

Indeed, it is also the case that as regards responsibility, throughout there has been an appalling breakdown in communications, but that has not been deliberate. However, paragraph 17 of the report states: A Pensions Bulletin was issued in January 1999, which summarised the changes to inherited SERPS in four paragraphs. However, subsequent Bulletins only provided holding answers for staff to give to the public. Rachel Lomax [the Permanent secretary] told us that the failure to fully inform the public at this stage was a conscious ministerial decision". There is a significant difference between a situation where there is an inadvertent breakdown in communications and one where there is a deliberate decision not to give the public full information.

I shall not detain the House by going into some of the other matters referred to by the Select Committee. This whole problem raises important issues as regards the relationship between officials and civil servants. I am glad that the report will do something to improve that because it is still impossible to find out who was responsible for what has happened. When I was the chairman of the Liaison Committee in another place, we dealt with this matter at great length. The report raises important questions—which I hope the Government will study carefully—as to the relationship in the House and in Parliament between officials and Ministers.

We spent many hours on previous Bills debating this issue. In particular, we commented on the ombudsman's report, which the Government said they accepted. The ombudsman recommended a global solution, which the Government's proposal for a protected rights scheme clearly was not. We now have a new situation which will, I hope, deal with the problems envisaged by the Select Committee.

The Select Committee was very concerned. It stated: Our fear is that the original maladministration in this case may well now be compounded by a redress scheme that has all the makings of an administrative disaster". Given that the Select Committee expressed that fear, and given the matters that we raised during previous debates on this subject, I welcome what the Minister has now said.

This is certainly an improvement on the previous scheme, which clearly would not prove to be practical. It is extraordinary that it has taken the Government so long to realise that that is the case. None the less, what is now proposed is better than the procedures previously envisaged—on which the House spent so much time and which are now, willy-nilly, dropped at a moment's notice.

It is a complex proposal and it will take time to understand it. Therefore, other than saying it is better than the previous proposal, I should not like to comment in great detail until we have had an opportunity to study it.

Perhaps I may ask the Minister one or two specific questions. First, as to the question of cost, I am rather surprised that, given the Government's proposal, the cost is smaller—amounting only to billions and billions—than one might have expected. As a point of comparison, can the Minister tell the House how the costs now to be incurred compare with the costs of not going ahead with the proposal to reduce SERPS at all?

Secondly, the Minister referred to a very small group of people who have documentary evidence. So far as those matters are concerned, will it still be the case—as previously recommended by the ombudsman—that the onus of proof will rest with the Government and not, as now proposed, with the normal administrative procedures?

Finally, we welcome the statements made in regard to better information for pensioners. It has emerged clearly from this saga that private pension providers have onerous obligations to provide correct information. It appears still to be the case that the Government have only a duty of care to provide proper information. The two are very different. Are we to understand that the Government propose to strengthen that position and that there will be a more onerous obligation on them to provide correct information than has hitherto been the case?

5.4 p.m.

Lord Goodhart

My Lords, we welcome the Statement. The inherited SERPS disaster has been debated on several occasions in your Lordships' House, both in the present Session and in the previous one. This is clearly the most serious administrative failure for decades—although, in relation to its effect on pensioners, it is not as serious in the end as the disastrous pensions mis-selling scandal, which was introduced as a result of the unfortunate decision of the previous Conservative government to allow people in occupational schemes to opt out of them.

Any fair remedy for this disaster will be very expensive. The ultimate cost appears to be something of the order of £6.5 billion that is some £2.5 billion for the deferral to October 2002 and an additional £4 billion. The Government's preferred remedy before the Statement was made was deeply unsatisfactory. It proposed that compensation should be given only to those who had acted—or, more likely, failed to take action—in reliance on incorrect information.

The burden of disproving a claim, once made by a pensioner, was placed on the Government. This meant, first, that the burden of initiating the claim rested on the pensioner. Many pensioners were unlikely to make a claim; many would have failed to appreciate the need to take action at all; and many others would have been deterred by the consequent involvement in the bureaucracy of having to deal with the DSS. But, because the claim, once made, was difficult to disprove, the scheme could have been a charter for fraud, as the Select Committee on Public Administration pointed out.

The Government's new proposals are therefore a great improvement. We welcome the age-related exemption from the reduction in SERPS as a better solution than the further deferral of the change in the system. We also welcome the tapered exemption for those who will be within 10 years of the state pension age on 6th October 2002. We shall obviously want to look at the detail of the proposals, but we believe that, in principle, they are acceptable.

The only part of the Statement with which we disagree is the attempt to place full responsibility on the Conservative government. It took the present Government two years after they discovered the existence of this mess to sort it out, during which time serious distress was caused to many people because of uncertainty and the possible loss of an expected benefit.

The Statement is not the end of the matter. Two things need to be done. First, there is a need to ensure fair treatment for present and future pensioners; and, secondly, there is a need to prevent any similar disaster happening again. The Statement deals in a broadly satisfactory manner with the first of these issues; it does not deal at all with the second. That is not a criticism of the Statement. This is a wider issue. It is not a matter for the Department of Social Security alone; it concerns every government department.

This disaster may well have been due, as Sir Christopher France suggested in his answer to question 188, to something as elementary as a proofreading error. That should not have been possible. Plainly, the antiquated IT system in the DSS may well have played a part. Here I shall refer to the evidence of Mr Peter Mathison, who was the chief executive of the Benefits Agency from 1995 to 2000. At question 248 he stated: Most local offices, very few people in the local office network have access to the intranet or PC-based thing, it is all very old systems. When I came in, in August 1995, I had not seen a black and green screen for nearly eight or nine years. I could not believe the state of the IT support. In pensions, there are, I think it is, something like 14 guides of 50 volumes and they are all paper-based, and that is just on pensions. Across the whole range of benefit, there are 500 manuals and guides people need to refer to, to answer one of any million of questions, and all of them are paper-based". Then he was asked: It must have depressed you enormously?". He replied: And it depressed me that we could not get the investment to do something about it; and since I have been outside I would give my eye-teeth to have some of the stuff I have been using recently. I have got better IT support in the spare bedroom at home". That is a devastating criticism of the failure of both the present and previous governments to invest properly in IT systems for the DSS.

Perhaps the most shocking passage in the Select Committee's report is the statement in paragraph 5 that, Government departments do not have a duty to provide information on changes in law". We want an assurance from the Government that the whole system will be overhauled. We want an assurance that this and future governments will accept that they have a duty to provide full and accurate information on changes in law to anyone who may be affected by those changes. We also want an assurance that, so far as is humanly possible, this scandal will never be repeated.

5.11 p.m.

Baroness Hollis of Heigham

My Lords, I am glad to receive the words of welcome for the Statement from the noble Lord, Lord Goodhart. I was a little disappointed at the tone of the response from he noble Lord, Lord Higgins. I thought it unusually grudging and half-hearted, and I was sorry about that. I am sure that he, the noble Lord, Lord Goodhart, and other noble Lords will accept that there is a very real difference between the position of the previous government and the present one. In 1986 the previous government took responsibility for making a variety of significant changes to SERPS. They included the 20 best years, the calculation in terms of annual, as opposed to incremental, changes in valuation, as well as the change in terms of inherited SERPS.

Any government who develop new policies have the responsibility at least to ensure that their literature is consistent with those policies. It was the then government's responsibility to ensure that the information that they gave out was accurate. They did not do so. That was a major failure on the part of the previous administration. I suggest in all modesty that that was rather different from the approach taken by the current Government who inherited the situation. As soon as they were aware of the problem, they took measures in the Bill that came before the House in the summer of 1999; they followed that with consultation; they came up with proposals in March this year, on which they subsequently consulted; and they are now responding. It has taken a fair amount of time, not only to consult properly, but to come up with proposals that the Government believe to be workable.

I remind noble Lords of our statement in July 1999 that, no one has suffered any financial loss as a result of these changes, because they do not take effect until 2000". We also said that we were, considering which of those two routes is the better to follow or whether there is a third route which we have not yet explored. Several different responses have been given this evening and a variety of other suggestions have been made".—[Official Report, 6/7/99; col. 847.] and that we were reviewing those suggestions. That was a proper, decent and honourable response. It suggests that the noble Lord, Lord Higgins, would be well advised to think again about such a churlish response. As soon as we were aware of the issue we took action; we came up with proposals; we consulted; and we have now changed those proposals in the light of further consultation. If only the noble Lord's own government had taken on the same degree of responsibility, we should not now be in the mess that we are in.

The difficulty for this Government is that when we realised the nature of the problem we thought that we could redress the grievance that lay at the heart of it; namely, that people were suffering, either from misinformation or from a failure of information, and that that had either added to their financial detriment or failed to act to their financial advantage. That was the problem that we sought to address. That was the basis of the protected rights scheme that we brought before the House in March 2000.

Having listened to people and taken part in consultation, we have now been persuaded that the problem is deeper and that we cannot merely redress grievances: we have to return to the drawing-board and redesign the scheme. I should have thought that the noble Lord, Lord Higgins, could have joined the noble Lord, Lord Goodhart, in welcoming the decency and propriety of our response, which I am proud to bring to this House.

Three specific questions have arisen, two of them shared by noble Lords. The first relates to costs. For the original scheme—the protected rights scheme—£2.7 billion was the cost of deferring any change until October 2002; there was to be a further £5.5 billion, making a total of £8.2 billion for the protected rights scheme. The scheme that we have now produced involves the same £2.7 billion through to October, and a further £9.5 billion, which brings the figure to £12 billion. I was asked what would be the cost of not going ahead at all. It would be £20 billion in total over 50 years.

The noble Lord, Lord Higgins, raised a point about remedy and maladministration. We shall now resort to the customary position of the DSS; namely, that if there is a case of maladministration the responsibility is on the DSS to ensure that the person is put back into the situation in which he or she would have been had the maladministration not occurred. That means that we are returning to a more conventional situation in which the person who is subject to the maladministration must show evidence to that effect.

Lord Goodhart

My Lords, I am grateful to the Minister for giving way.

Baroness Hollis of Heigham

My Lords, I remind the noble Lord that I must finish my response to the Front Bench in two minutes.

Lord Goodhart

My Lords, I am sorry. I should merely like to ask why the Minister in the House of Commons referred to the cost as an extra £4 billion, rather than the £9 billion that has been mentioned.

Baroness Hollis of Heigham

My Lords, it is an extra £4 billion in total on the £8 billion of the protected rights scheme. That is the difference between the two schemes over 50 years.

Three points were raised about information. The first related to letters to individuals. As soon as the Secretary of State was aware of the problem early in 1999, he wrote further letters to people who had written to the department. The second question, raised by the noble Lord, Lord Goodhart, related to information for staff and the cascade of knowledge. The noble Lord was absolutely right; this has been a weakness within the DSS. We are strengthening the system as regards information: we have developed the IT system and it is being rolled out. However, the noble Lord is right—unless staff in local offices have the requisite information they cannot advise people accordingly. The third question associated with information was what knowledge would go to pensioners and prospective pensioners.

First, we are writing to all those who contacted us—some 20,000—and giving them information. We are developing a campaign to ensure more widely that those who are affected will know about it. We shall work with Age Concern and the relevant organisations to ensure that that knowledge is as widely dispersed as possible. Secondly, we shall be producing an integrated pension statement. From next year people will receive information about both their state retirement pension and their SERPS. We hope that from the following year we shall also be able to provide them with information about their private pension, so that they will be able to see what their future expectations may he and whether they want to take additional action in order to build up their pension rights.

I hope that with that response on cost, on the question of remedy and on information, noble Lords opposite will feel that I have answered their questions.

5.17 p.m.

Lord Brett

My Lords, I rose to make a premature contribution because I, too, was taken aback by what I felt was a churlish response from the Opposition Front Bench. I have been concerned over the past months at our inability to arrive at a full solution in terms of removing the fear on the part of innocent people who have been subject to maladministration through no fault of their own. I am delighted to congratulate the Minister on the Statement and on finding a solution. My only advice to those on the Opposition Benches is to remember the comments of the noble Lord, Lord Healey, some years ago: "When in a hole, stop digging".

Baroness Greengross

My Lords, I thank the Minister for this welcome Statement. The Government have indeed listened to older people and to the organisations that work with them. This campaign has been hard-fought both for and by those people. I would mention in particular the All-Party Group on Ageing and Older People and the noble Lord. Lord Rix, who have done a great deal; as has my own organisation, Age Concern—both when I worked directly for it and since then.

I first wrote to the DSS in October 1998 and my letter set some alarm bells ringing. I am delighted that the new scheme is much more along the lines of what we suggested during debate on the Child Support, Pensions and Social Security Bill earlier this year. That is good news. I am very pleased that current pensions will be unaffected by the change to SERPS.

I hope that the Government will consider most carefully how the taper will work for new pensioners. Does the Minister agree that one of the most significant parts of the Statement relates to a point made by both noble Lords opposite who have spoken; namely, that future changes to state pensions will be better publicised. Changes to pensions are not the same as other changes to the law. I say that because they involve planning by people for their future. It is a long-term task. I believe that there is a moral, if not a legal, obligation to inform people about such changes.

Of course, it might also be necessary for it to be a legal requirement. It is terribly important that this point should be taken on board for the future.

Can the Minister tell me what consultation will now take place? Can she say specifically whether this House will still consider the proposed regulations in detail and, if so, can she also say within what sort of timescale that might happen?

Baroness Amos

My Lords, before my noble friend the Minister replies, perhaps I may remind the House that, in order to maximise the time available to deal with Statements, noble Lords should confine their remarks to questions rather than making general comments.

5.21 p.m.

Baroness Hollis of Heigham

My Lords, I very much welcome the thanks and support expressed by my noble friend Lord Brett and, indeed, the generous welcome given to the Statement by the noble Baroness, Lady Greengross. I should like to pay tribute to the noble Baroness for her efforts in this respect. That applies also to the noble Lord, Lord Rix, who, I am sorry to say, is not present in the Chamber. I pay tribute to him for his supportive and constructive but, none the less, terrier-like campaign on these issues. As I say, I believe that we have achieved an outcome that is decent, honourable, fair and, above all, workable.

As the noble Baroness identified in her remarks, the advantage in our scheme is that there are no cliff edges; it is a taper. I am delighted about that. I can tell the noble Baroness that the regulations will be produced in draft form. They will, therefore, go to the Social Security Advisory Committee and be made available to the Select Committees, and so on. As a result, there will be ample opportunity for further consultation about the detail of this implementation.

Baroness Carnegy of Lour

My Lords, my noble friend asked the Minister whether the Government still have only the duty of care or whether there will now be greater responsibility placed upon them. Can the Minister say whether the issue of combined pensions statements mentioned in the Statement, which she subsequently explained and to which the noble Baroness, Lady Greengross, referred, mean that the Government are now taking greater responsibility in this respect?

Baroness Hollis of Heigham

My Lords, it is not so much a matter of responsibility; it is a question of providing information. In the light of available information, we are—absolutely rightly, in my view— trying to help people plan for their retirement by giving them the best forecast that we can as to what their contributions so far in a possible variety of pension schemes may produce for their future. We hope to start issuing such statements on an annual basis from next year for retirement pensions and SERPS. We shall also include information in that statement about occupational pensions. However, these are forecasts: they are future projections, with all the relevant health warnings attached. We are trying to ensure that people have the fullest possible knowledge to enable them to plan for their future old age.

Baroness Turner of Camden

My Lords, I thank my noble friend for repeating the Statement. As she knows, I have not always been fully supportive of the Government's policies on pensions. However, on this occasion, I welcome the Statement with great pleasure. As noble Lords know, I have been present in the Chamber on every occasion upon which there has been discussion about inherited SERPS and the problems that have arisen because of the failure of the previous government to see through the decision that they made in 1986. Indeed, reference has been made to the latter by noble Lords on this side of the House and by noble Lords opposite.

I am particularly glad that the position of present pensioners is to be fully safeguarded and that proper transitional arrangements are in place. An important consideration in pension matters is that people ought to know about their entitlements. They have to plan for their future and they must know about their pension provision. I was especially pleased to hear that it is intended to issue combined pension statements. That will serve to focus people's attention on pension provision. If this is to be done on an annual basis, with mention being made of occupational provision, as I believe my noble friend said, that will also be a very valuable aid to people when planning their pensions.

This is an excellent Statement. I am most grateful to my noble friend for the announcement. I am sure that she had a great deal to do with these measures behind the scenes. I thank my noble friend most sincerely for having secured such a satisfactory settlement.