Schedule 10 - Deferral of retirement pensions and

Pensions Bill – in a Public Bill Committee at 12:00 pm on 16th March 2004.

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Amendment proposed [this day]: No. 226, in

schedule 10, page 220, line 33, at end insert

'which shall be not less than two percentage points greater than the base rate of the Bank of England.'.—[Mr. Webb.]

Question again proposed, That the amendment be made.

Photo of Mr James Cran Mr James Cran Conservative, Beverley and Holderness

I remind the Committee that with this we are taking amendment No. 227, in

schedule 10, page 223, line 11, at end insert

'which shall be not less than two percentage points greater than the base rate of the Bank of England.'.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

The Minister has given two reasons why he would resist our amendments No. 226 and 227. Apart from the fact that other amendments would need to be tabled alongside them, one reason was that his computers would have trouble keeping up. That was a startling reason, because I imagine that regulations can be framed to reflect the fact that there will be a lag between the Monetary Policy Committee changing the rate and the application of the new rate to pension accrual. I accept that there is a practical issue to be resolved. The other argument was that the amendments were not necessary because the Minister is an honest sort of guy.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

That is what I meant. I was greatly heartened to hear that other argument. I am slightly disappointed that the Minister wants to reserve the right to go back on what the Secretary of State said in the past and reject these amendments. However, in a spirit of trust, and given the generosity that he has shown me this afternoon, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

I beg to move amendment No. 229, in

schedule 10, page 221, line 38, at end insert—

'9A After paragraph 3C (inserted by paragraph 9 of this Schedule) insert—

''Treatment of lump sum where deceased pensioner has no spouse

3D Where a person has accrued a right to a lump sum payment under paragraph 3A of this Schedule, and where such a person has no spouse, the value of the lump sum accrued by the time of death shall be payable to the estate of the deceased.''.'.

I have one further detailed proposal in relation to schedule 10. It is significant, because at present, if I, as a single person, draw a retirement pension and then I die, that's it—[Interruption.] Obviously, that's it anyway—[Interruption.] Yes, that is indeed a subject for a much wider debate, but that's it as far as the national insurance fund is concerned.

However, if I were—as indeed I am—a married man, and I died, my widow would have some claim on my contribution records, so the national insurance fund would have a continuing interest in my situation. When we apply that logic to the lump sum, the argument is that if, as a married man, I defer taking my pension, decide to draw a lump sum and then die, my widow has a claim on the lump sum. The Bill seems to me to correspond with that idea, although I may have misunderstood it—but I think that I am right. If I am a single man and I defer, my estate has no claim on the lump sum.

Is there an imbalance between the incentives for single people and those for married people to defer and opt for a lump sum? Is a lump sum a bad idea for a single person because they might lose the bet and die? All things being equal, it is less attractive for single people to defer than it is for married people, because the single person's estate will not get the money. Is that not a rather peculiar by-product of the new lump sum arrangement? Would we not even up that peculiar asymmetry if single people had the right to bequeath their lump sum, which they might not yet have drawn, as part of their estate?

Presumably, the Government want people to use this provision. They would not have introduced it if they were not going to promote the option. The Government want people to defer and take the lump sum, or at least think seriously about the options. It would be odd if single people thought, ''It isn't worth my while, because I might never see this money, and neither will my heirs,'' while married people thought, ''Yes, this is a good idea, because even if I die and lose the bet, my spouse will get some of the money.'' My amendment would level that infamous playing field between single and married people, and give them equivalent incentives. I am not suggesting that the whole of the lump sum should go to the estate; I would

intend whatever would have gone to a widow to go to the estate, although perhaps my amendment would not achieve precisely that. I shall be interested in the Minister's reflections. Does he feel that there is asymmetry between single and married people? Is that a deliberate policy or an accidental by-product, and does he feel the urge to do anything about it?

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

That is an interesting point. The hon. Gentleman talked about the choices available to him at the point of his own demise, but I am glad to say that he looks very well. Scores of people in the Department's parliamentary questions unit depend on his good health; they would otherwise be redeployed to the edges of our kingdom in Jobcentre Plus outreach units.

The aim of the Opposition amendment is to allow a lump sum to be paid to the estate when the individual who deferred died before claiming and was unmarried at the time of death. Perhaps we should start a dating agency to stop that anomaly from happening.

The amendment is not fully effective, but that does not matter, because the principle behind it is apparent enough. The provisions dealing with lump sums for a surviving spouse are, in effect, an extension of the current rules entitling a spouse to increments on his or her own pension in respect of the deceased spouse's deferment. That recognises that marriage implies enduring mutual financial support and obligations. However, the amendment would go further by requiring the lump sum to be paid to the estate of a deceased deferrer if there were no surviving spouse, or no spouse at all.

As matters currently stand, we do not think that is the right approach. There is, of course, an argument to be made about the equity of treatment of married and unmarried couples in social security law—an argument that the hon. Gentleman has made in part, and which has been the subject of a number of cases in the European and domestic courts. I suspect that this Parliament will hear more about it as the years and decades unfold. However, that is not the subject of today's debate, because it goes far wider than the relatively narrow issue of the potential inheritability of the state pension lump sum. This is not the place for such a discussion.

The amendment would allow children, or any other beneficiary of the estate of the deceased, to benefit, and to treat the lump sum like any other windfall payment. I do not accept that that would be a proper use of the national insurance fund, the basic purpose of which is to provide support for pensioners in their retirement, not to support their heirs. Ironically, under the amendment the amount paid to an estate would be greater than the sum payable to a spouse, because a lump sum for a surviving spouse would be adjusted in line with the rules on inheritance of additional pension.

I hope that the hon. Gentleman, who has raised an interesting question, will, after listening to my rather

interesting answer, consider withdrawing his amendment.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions 4:15 pm, 16th March 2004

I will, because it if the amendment is not right it should not go forward. Whether or not there is an argument about whether this is a technicality or an anomaly—and it was the Minister who used the word ''anomaly'', not I; or perhaps we both did—the danger is that the Government's policy will be thwarted if for every person faced with a choice between taking their pension now, deferral, or a lump sum, the answer to the question, ''What happens if I choose the lump sum and then die?'' is, ''You've lost it, pal''.

The pension is contributory. The Minister used the word ''windfall''. Perhaps the money would be a windfall for the kids, but it would be a windfall from a pension that someone earned but will never receive. Obviously, no one who dies before the state pension age will get what they have paid for, but we are talking about people who may well have lived well past state pension age, yet who might never see a penny of their contributory pension.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

What does the hon. Gentleman feel a pension is for?

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

One of the critical factors is that we are talking about a national insurance contributory pension, which provides a way of smoothing income over a person's lifetime. In other words, people take a lower income while they are working and accrue an entitlement to replace their lost earnings when they are in older age. What if somebody reaches 65 and faces the choices offered by the Minister? The danger of not accepting an amendment of this sort is that the Government will have trouble selling the idea, and will not be able to persuade single people, who will realise that although they have contributed all their lives, they will risk never seeing a penny of the money if they go for the lump sum, whereas a married person will have the reassurance that the money will go to their spouse.

I urge the Minister to reflect on that. He may find that not only will poor people not take up this option, single people will not do so either, and it will end up being a provision for the well-heeled, married rich. I do not suppose that that was his intention.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That this schedule be the Tenth schedule to the Bill.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

There are pages and pages of schedule 10, and I have only sought to amend two or three little bits. Will the Minister tell us what it is about, especially the parts that we have not discussed so far?

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

Just when I thought the hon. Gentleman was being reasonable!

The schedule sets out the legislative framework providing for the choice between increments and the new lump sum for those who defer their retirement pension and shared additional pension. It sets out how the lump sum is to be calculated, and makes consequential changes to the existing provisions relating to the calculation of increments. It also

contains provisions enabling the surviving spouse of a person who dies while their pension is deferred to ''inherit'' either a lump sum or increments. It therefore provides the nuts and bolts of the new proposals.

I welcome the fact that the Opposition have given broad, though conditional and—I will be polite—occasionally slightly cynical support to these proposals on Second Reading and in Committee. The measure is about giving people more options as they approach retirement, and about improving the incentives on offer for people who want to extend their working lives.

An increased pension payable as a result of delaying claiming the state pension has been part of the state scheme for decades, but relatively few people take that option—we mentioned 3 per cent. Providing a much more generous rate of accrual by bringing forward the change in rate from 7.5 per cent. to 10.4 per cent. for each year of deferral will make it a more attractive option. However, by itself, the improved rate for increments will not be enough, so we are introducing the option of the new lump sum—a major policy innovation that we have discussed at length.

This is not about compulsion or about forcing people to work longer; any debate about the state pension age is yesterday's debate rather than today's. Giving people an additional choice requires them to weigh up their circumstances and take a decision, and we will ensure that the Department provides information that carefully explains the options and how they are treated for tax and other benefit purposes; we have discussed the implications, especially for pension credit, in detail. Some may call it ''increasing complexity''; we prefer to call it creating opportunities and choice for people.

I have outlined schedule 10—and as I anticipated that the hon. Gentleman would ask me to do so, I wrote the note myself last night.

Schedule 10 agreed to.

Clause 222 ordered to stand part of the Bill.