Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill - Second Reading

Part of the debate – in the House of Lords at 10:51 am on 25 March 2022.

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Photo of Baroness Merron Baroness Merron Opposition Whip (Lords), Shadow Spokesperson (Health and Social Care), Shadow Spokesperson (Digital, Culture, Media and Sport) 10:51, 25 March 2022

My Lords, I congratulate the noble Baroness, Lady Redfern, on introducing this important Bill. I am particularly grateful for the clarity with which she simplified the complexities. Noble Lords will realise that I am but a stand-in for my excellent noble friend Lady Sherlock, to whom we send our best wishes for a full and speedy recovery. I hope I will do justice to her today.

As we have heard, guaranteed minimum pensions are a legacy arrangement for pension schemes which contracted out of the state pension between 1978 and 1997. Their aim was to ensure that when someone who contracted out reached pension age their guaranteed minimum pension would at least equate to what they would have got in additional state pension.

However, as we have heard in this very informed debate, the saga of GMPs has been long and winding. A series of court judgments has established that men and women must be treated equally in relation to GMPs. That may sound obvious but is actually very complicated because it is quite possible that, in practice, a man and a woman who had the same working history could end up with different GMPs. There are all kinds of issues. The difference in the state pension age meant that women’s pensions accrued more quickly. Revaluation and indexation of GMPs affected men and women differently, and then there is a whole set of complexities around survivor benefits.

GMPs are a legacy issue and contracting out has been abolished, but the historic issues remain, as my noble friend Lord Davies pointed out. The DWP has tried to sort this out without legislating. It consulted and published guidance, but it has never provided sufficient clarity and certainty to draw a line under the issue. It is up to each occupational pension scheme how it goes about equalisation within the law and guidance, but there are still too may risks facing schemes trying to work out how to deal with this, so the Bill seeks to address the legal uncertainty that current legislation can pose when pension schemes seek to adopt a process for addressing equalisation of guaranteed minimum pensions.

As the noble Baroness, Lady Wheatcroft, so correctly said, this is about equality. I am grateful to her for emphasising the need for certainty and simplification, which chimed with the comments made by my noble friend Lady Drake, who rightly reminded your Lordships’ House that pensions are deferred pay. Indeed, they should be as understandable and certain as we expect pay to be.

The noble Baroness, Lady Redfern, has helpfully set out the main aims of the Bill and I confirm the support of these Benches. However, I have some questions. It would be helpful to know what consultation has gone on with the industry about the provisions of the Bill. Can the Minister tell the House whether the Government have taken legal advice that gives them confidence that, if this Bill is passed, there will finally be sufficient legal certainty for occupational schemes which adopt an approach to equalisation within the law and guidance? This is a crucial question because the legal position has continued to evolve. During the debate last year on the order uprating GMPs, my noble friend Lady Sherlock raised the November 2020 Lloyds case, which has been referred to in this debate, when the High Court ruled that formerly contracted-out schemes owed a duty to members with GMPs who had exercised their statutory rights to transfer out benefits to equalise those benefits for the unequal effect of GMPs. She asked the Minister whether the Government planned to issue any further guidance and support to pension schemes in the light of that judgment. In a letter following that debate dated 11 March 2021, the Minister said that the Government had published guidance on the method for equalising pensions for the effect of GMPs and did not think anything further was needed. Will this Bill have any impact on those who have transferred out? Is the Minister still confident that there is sufficient legal certainty for schemes in dealing with this situation?

My noble friend Lady Drake raised the issue that GMP equalisation can have negative tax penalties for some scheme members where any increase to their pension or past transfer penalty flowing from equalisation impacts their annual allowance or lifetime allowance position. I realise that HMRC has published guidance for pension schemes on the tax implications of adjustment payments made as a result of equalising benefits. However, it is extremely complicated, especially in relation to the tax position of the conversion method. The Minister said in a letter after the last GMP uprating debate that more work is being done by HMRC to understand the tax issues associated with the conversion method and that it is working with its industry working group, so my noble friend’s question is a good one. When can we expect to have an answer? After all, it would be a shame if we were to pass a Bill designed to sort this problem out once and for all only to be left with uncertainty in relation to tax matters.

My noble friend Lady Drake asked a number of pertinent questions today. There was one that I particularly wish to emphasise. It was about what happens to people whose pensions schemes are in the Pension Protection Fund—that is, what would happen to people who are due an equalisation who are either in the PPF or on their way in. This is a particularly important question. If it turns out that the Bill should have covered this but has not, I hope that the Minister will assure your Lordships’ House that a way will be found to address it before the Bill becomes law.

Finally, I shall say a word about what happens next with this Bill. The Pensions Minister, Guy Opperman, indicated his support for it, for which we are grateful, but he also said at Third Reading in the other place:

“The reality is that there is no real way for my hon. Friend’s Bill to get through this House and the House of Lords in the time allowed”.—[Official Report, Commons, 25/2/22; col. 659.]

I am hoping this is no longer the Government’s view. Can the noble Baroness tell your Lordships’ House whether the Government believe that the Bill could reach the statute book during this parliamentary Session and, if so, what it will take to get it there?

Having asked the Government repeatedly for legal certainty, we hope that it may finally come through this Private Member’s Bill. I congratulate Margaret Ferrier MP on bringing this Bill through the Commons and the noble Baroness, Lady Redfern, on bringing it to us. I am pleased to offer our support.