Clause 2 - Abolition of certain additions to the state pension

Pensions Bill [Lords] – in a Public Bill Committee at 3:30 pm on 7 July 2011.

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Question proposed, That the clause stand part of the Bill.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

Sad but true. I want to introduce the Committee to a niche part of the state pension system. We talked about complexity earlier. This is the doyen of complexity. This is the payable uprated contracted-out deduction increment, known in the Department as the PUCODI, to rhyme with Kirkcaldy. It gets worse, because when a spouse dies, the widow or widower can inherit a PUCODI, and 9,000 people have inherited them. It is an example of just how absurdly complex the pensions system has become.

To disentangle the different bits, a contracted-out deduction is the bit that comes off a person’s pension to reflect the fact that they contracted out of the state earnings- related pension scheme and its successors, and that the scheme has to provide them with something instead. They get a deduction because they contracted out, or a COD. If they put off the COD it is incremented, so it is a CODI, a contracted-out deduction increment. However, it is increased in line with inflation under different rules, depending on when it happened, what  sort of scheme was opted out of and so on, which is where the uprated contracted-out deduction increment comes from. In payment, it is a payable uprated contracted-out deducted increment, or a PUCODI.

We have had enough, really, and reached the view that there are bits of the system that are not achieving a great deal, and it is time we got rid of them. I can reassure the Committee that we are not taking any money off anybody who is currently getting one, so those who treasure their PUCODIs can keep them. Seventy-eight per cent. of these payments are less than £1 a week; 21,000—17%—are between £1 and £3; 6,000 are £3 a week or more. A tiny number of people who have been getting these things for a long time, and have a particularly obscure combination of circumstances, can get more than £10 a week, but if I tell the Committee that fewer than 1% of pensioners get those things, I hope that hon. Members will agree that their days are numbered. I would like to stress that we will carry on paying them to existing recipients, but we do not think that keeping that kind of thing in the system achieves anything for anybody. Therefore, under clause 2, we abolish the PUCODI. I commend the clause to the Committee.

Photo of Malcolm Wicks Malcolm Wicks Labour, Croydon North

Two points: first, that the Minister was able to make that speech almost without a note is either a credit to him, or something rather different. However, my second and more serious point is: what is the annual saving in public expenditure on that? It sounded very trivial, but the Minister is in many respects slicing away pension expenditure, and I wondered how many shillings are involved here.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

I am very grateful to the right hon. Gentleman. The answer is: annually managed expenditure savings of under £1 million, in 2011 price terms, between 2011-12 and 2015-16. So as cuts go, it is not the most savage.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.