Clause 10
Pensions Bill
12:30 pm
Sally Keeble (Northampton North, Labour)
I beg to move amendment No. 70, in clause 10, page 11, line 14, leave out ‘40’ and insert ‘45’.
David Taylor (North West Leicestershire, Labour)
With this it will be convenient to discuss the following amendments:
No. 71, in clause 10, page 11, leave out lines 15 and 16.
No. 72, in clause 10, page 11, line 31, leave out ‘40’ and insert ‘45’.
No. 73, in clause 10, page 11, leave out lines 32 and 33.
No. 74, in clause 10, page 12, line 7, leave out ‘40’ and insert ‘45’.
No. 75, in clause 10, page 12, leave out lines 8 and 9.
Sally Keeble (Northampton North, Labour)
I shall be brief so that the Minister has time to respond before we adjourn. The amendments would make the state second pension more flat rate. They would bring forward the flat-rating of the accrual state second pension to increase redistribution rather than giving increased benefits to the higher earners. That would mean that the state second pension would be more targeted towards the lower earners. The amendments would abolish the second accrual rate band, which gives greater benefits from S2P for those earning more than the lower earnings threshold, currently £12,500 a year, with additional benefit accrued on earnings up to the upper earnings limit.
The band would slowly erode anyway under the present system, so that S2P would be flat rate by 2030. Abolishing it now would enable a greater level of flat-rate benefit to be paid to all through an increase in band 1 to accrual rates of 45 per cent., which would give greater support from the state for all, rather than the state pension system delivering more for higher earners. The higher earners can, of course, save for themselves and can accrue a greater retirement income through private savings either in existing schemes or through the proposed system of personal accounts.
Generally, there has been a lot of criticism of the Bill for not providing for pensioners’ needs now. I do not agree; the present generation of pensioners is supported by other means. Pension credits have been mentioned, and there are also things such as fuel allowance, the increase in the personal allowance and the introduction of the 10p starting rate for tax. However, the group that I have been concerned about consistently—they are, largely, the people we are talking about in relation to the state second pension—is women pensioners. They will start to see some benefits under this scheme, but will miss out on the more general improvements that will come, either through the restoration of the earnings link and the reduction to 30 years’ contributions or because they are not of the generation that is earning now and getting the same access to pensions as men thanks to higher earnings and different working patterns. That gives us a generation of women between now and about 2020 or 2030 who may need more financial support in retirement. Bringing forward the flat rate in S2P and making it more redistributive will make it more supportive for that particular group at a critical stage before the other improvements come through.
Nigel Waterson (Shadow Minister, Work & Pensions; Eastbourne, Conservative)
I appreciate that the hon. Lady’s amendments aim to make the Government’s proposal, which is already redistributive, even more so.
Nigel Waterson (Shadow Minister, Work & Pensions; Eastbourne, Conservative)
Does she accept that even on the Government’s proposals, let alone hers, anybody earning more than £18,000 a year would continue to pay the same level of national insurance contribution, but would have his or her S2P benefit significantly reduced? Does she think that that is fair?
Sally Keeble (Northampton North, Labour)
There is clearly an issue of who should benefit from the different schemes. It is important that measures that are designed particularly to support those on low earnings should provide adequate support to lift them out of poverty. Under my proposals, women would have just over £135 a week, which is not a huge amount for people to live on. Of course it would be nice to give more money to everybody, but people earning the amounts that the hon. Gentleman mentions are more likely to have made provision through other means, or may have savings.
We have to ask who should be supported by the state and what we are trying to achieve. Nobody wants to take money away from anybody, but if we are trying to ensure that women on low incomes, perhaps in marginal areas of employment, can have a better income in retirement without going on to means-tested benefits, is it not sensible to make the measures that are designed to support people on low incomes more rather than less redistributive and bring them in earlier rather than later? That is the argument behind these proposals.
It would be helpful if my hon. Friend the Minister could indicate at what point the Government would introduce the flat-rate £1.40 a week band, and when he would expect S2P to become entirely flat rate. Is there any scope for that to happen before 2030?
James Purnell (Minister of State (Pensions Reform), Department for Work and Pensions; Stalybridge and Hyde, Labour)
I am genuinely grateful to my hon. Friend for her amendment. She will be glad to know that this one saves money until 2050, and then it has quite a big spike. In her ping-pong with the hon. Member for Eastbourne, she can quote this one. The precise financial implications after 2050 are that the costs start to grow—up to £7.5 billion annually by 2070.
The reason why the amendment would reduce the overall cost is that it moves towards immediate flat-rating and, therefore, takes out of the Bill the transitional earnings relation. The issue is worth probing slightly. First, the Conservatives say that they support the Bill overall, but their position here is slightly more tentative. Every now and then we read in the Daily Express or Daily Mail that they are against the Bill on the basis that it is some huge stealth tax. The truth is that it is not a stealth tax. Everybody, in all earnings brackets, benefits from the Bill. Secondly, the Conservatives do not have an alternative proposal, unless they are proposing to go back to the old state earnings-related pension scheme.
David Taylor (North West Leicestershire, Labour)
Order. Will the Minister return to the subject of the amendments?
James Purnell (Minister of State (Pensions Reform), Department for Work and Pensions; Stalybridge and Hyde, Labour)
Of course. I will stick closely to the amendments, which are about when we go towards flat-rating. What I have been pointing out all the time is that not going towards flat-rating would cost about £10 billion per year. That is a spending commitment, if that is what the hon. Member for Eastbourne meant in his intervention.
What would the effect of the proposed changes be? A low earner would—
Nigel Waterson (Shadow Minister, Work & Pensions; Eastbourne, Conservative)
We are now in a twilight zone, where the Minister is making spending commitments for us. To be clear, our concern, which I will deal with in greater detail later in the clause, is that the Minister always lumps together the increase in the basic state pension when he looks at the effects on higher earners. However, higher earners need to be aware that, even without the amendments tabled by the hon. Member for Northampton, North, the proposals are redistributive—highly so, according to some calculations. That is our point.
David Taylor (North West Leicestershire, Labour)
Order. This is not a clause stand part debate. Can we return to the subject of the amendment?
James Purnell (Minister of State (Pensions Reform), Department for Work and Pensions; Stalybridge and Hyde, Labour)
I take your directions clearly, Mr. Taylor, and we can return to the issue later.
It is worth reminding the Committee that the state second pension is made up of two components. Everybody who pays into the state second pension, or is credited into the system, is assumed to earn at least £12,500, whether they do or not, which provides for them to receive the flat-rate amount of S2P. In addition, earnings over £12,500 and up to £33,540 attract an earnings-related component to the state second pension. The Pensions Commission recommended that the earnings-related component should be withdrawn to make way for personal accounts.
The commission analysis identified three options for accommodating the withdrawal of earnings relation with the emergence of personal accounts. First, the commission considered stopping earnings relation overnight, which would be the effect of the amendment tabled by my hon. Friend the Member for Northampton, North. At the other extreme, the second option was continuing with the existing withdrawal path of earnings relation, which would see us out of the system by the mid-2050s. The third option, which the commission recommended and we support, was to accelerate the withdrawal of earnings relation by freezing the upper earnings limit at the point where accruals to S2P end. This would see earnings-related accruals out of the system by around 2030. I can confirm that our goal is to get to that point in 2030. There are provisions in the detail of the clauses to allow for changes to be made around that date to achieve that and to revoke those parts of the legislation that would by then have become otiose.
The commission recommended that option, which is what we are doing. A sudden move to flat-rating, which the amendments aim to deliver, would impact not just on those who would otherwise get a transitional amount of earnings relation, but on the contracting out of state second pensions. That could have an unpredictable and quite damaging effect on final salary schemes, which, of course, are supported by the contracted-out element related to S2P. Given the importance of final salary schemes, we decided that that would not be the right approach and, indeed, the Pensions Commission has observed that a gradual decline in the rebate would be the most appropriate policy.
The second objective of the amendment is to increase the accruals rate of the flat-rate element from 40 to 45 per cent. That would make the flat-rate element more generous. We have taken a different approach with our simplification of S2P—the heart of clauses 10 to 12, which we will discuss in the relevant stand part debates. Suffice it to say that our approach is simpler to understand and strikes the appropriate balance between flat-rating and a transitional amount of earnings relation. I therefore urge my hon. Friend to withdraw her amendment.
Sally Keeble (Northampton North, Labour)
That explanation was very helpful. I beg to ask leave to withdraw the amendment.
David Laws (Shadow Secretary of State for Work and Pensions, Work & Pensions; Yeovil, Liberal Democrat)
I beg to move amendment No. 64, in clause 10, page 12, line 15, at end add—
‘(7) The Secretary of State shall publish estimates, no later than 1st April 2008, of how many people he expects to receive less than £135 a week in Basic State Pension and Second State Pension combined in 2030 and 2050.’.
The amendment is similar to the 29th recommendation from the Select Committee on Work and Pensions in its report on the Government’s pension reform proposals and came in the context of a statement from the Government in response to the consultation on the White Paper in October 2006. In paragraph 57 of the White Paper, the Government pointed out that the median value of a state pension for those reaching state pension age in 2050 would be £135 and that anyone with a good working or caring life would be entitled to about that amount. The Government have, of course, already responded to the Select Committee’s recommendation by publishing estimates, in October 2006. They project that under the White Paper proposals by 2050 about half the number of individuals reaching the state pension age will have a total state pension entitlement of at least £135 per week, in today’s earning terms, and that two thirds will have an entitlement of at least £125 per week.
The amendment, which is a probing one, is designed to invite the Government to keep closely under review the level of pension provision for individuals of the type just mentioned by the hon. Member for Northampton, North—those on lower earnings—particularly given concerns that the new personal accounts will not necessarily be very attractive to those on low incomes because of the extent of means testing. It is important, therefore, that we have a good and constant assessment not only of how much they can expect from their basic state pension and state second pension provision, but of how the personal account provision will affect them in the future in order to ensure that it is an adequate replacement for the benefits that the Government would have sought to deliver more securely through the existing system.
James Purnell (Minister of State (Pensions Reform), Department for Work and Pensions; Stalybridge and Hyde, Labour)
I am grateful to the hon. Gentleman for tabling the amendment, although he could also have tabled a parliamentary question, to which I would have been equally happy to reply.