Clause 3 - Consolidation of additional 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

The Committee will see that clause 3 is probably the simplest clause in the Bill, because it just says to read the schedule. The reason it says that is because the schedule is long and complicated, and we regard our legislation as akin to poetry. We do not like to disturb the flow of the poetry with long and technical detail, so we shove it all in a schedule, and clause 3 just provides for doing what it says in the schedule. If I may, Miss Clark, because clause 3 enacts the schedule, I will refer to the schedule, and not speak about the schedule itself again.

Clause 3 relates to consolidation, which is another juicy bit of the system. It was something that a previous Government legislated for, and it made a lot of sense. Consolidation tries to bring together historic rights and earnings-related bits of the state scheme and the contracted-out equivalents, into a single number rather than have a history of state pension that is built up from, for example, periods from ’78 to ’88 under one set of rules and ’88 to ’97 under another, and a different set of rules after that. It tries to take all of that—bits that are uprated at different rates, bits where the scheme has to uprate at one rate and the Government have to uprate at another—and collapse it into a single figure.

The purpose of that exercise, which I supported in previous legislation, is to help people know where they are going. Coming back to our earlier discussions, when people ask us how much state pension they will get, the letter we send them is utterly baffling. It has to be because it is full of caveats, qualifications and “what ifs”. Indeed, this issue of consolidation would help us a great deal with that because we would be able to say, “This is the figure and this is what will happen to it,” whereas at the moment we have to say things like, “The figure we have given you might turn out to be too low or too high or maybe it should be zero.” That is what our letters say because of the great complexity of the system.

Consolidation per se is a good thing. The question is, when should we do it? The previous legislation was designed to produce consolidation in 2020. That date was chosen specifically because it was the date at which equalisation of men’s and women’s state pension age was due to happen, so it seemed logical to do it at that point. Obviously, the Bill changes the date of equalisation.  We could just bring 2020 forward to November 2018, or a financial year around then. However, as the Committee is aware, there is an awful lot going on in the state pension world at the moment—not least our Green Paper and a possible flat-rate state pension, which would itself have implications for consolidation, and when it happened and how it interacted. So what we are seeking leave to do under clause 3 is, rather than have a specific date of 2020 for consolidation, which was the previous proposition, to give ourselves more flexibility about when it should happen.

I reassure the Committee that consolidation, which I support—which was legislated for by a Labour Government—is designed to smooth payments to overcome differences in indexation between additional pensions that the state pays and contracted-out rights, which just caused great complexity in the system. The purpose of all this is to give us the power by regulation to set the most appropriate and effective group and start date by order rather than have it in primary legislation. We will come back to the House when we have taken a view on that. It does not affect people’s pension rights overall. It can affect the profile of their pension rights through their retirement, but it is very much a simplification that we support and welcome. However, we want to ensure that it meshes in with our wider state pension reform agenda, so we are seeking the flexibility that clause 3 and schedule 3 would give us. I commend the clause to the Committee.

Photo of Teresa Pearce Teresa Pearce Labour, Erith and Thamesmead

I am interested in what the Minister says about simplification—getting rid of anomalies, bringing everything together. Do pensioners still get the £10 Christmas bonus? If they do, is that likely to be amended or abolished?

Photo of Katy Clark Katy Clark Labour, North Ayrshire and Arran

There has been a huge amount of latitude in the debate, so I think it would be appropriate. Would anyone else like to speak?

Photo of Malcolm Wicks Malcolm Wicks Labour, Croydon North

I want to ensure that I understand this one. The Minister said that the legislation on consolidation was introduced by a Labour Government so it is obviously right, but I want to understand why it is right. I can understand that people’s assessments can look very complex but, on the other hand, by giving some detail these assessments enable pensioners who have some understanding of their history to check that they are getting the right amount. People can accumulate some money from things that are now relatively obscure, such as the graduated pension scheme. Will the Minister tell me whether in the future people will still have enough detail to ensure that they get the right total amount? Some people would welcome the detail. The Minister said earlier that perhaps records are not what they should be, so we need to ensure that people understand.

I notice that the very rich do not mind a bit of complexity as long as the bottom line shows they are very rich. Some detail for other people is in order.

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

Taking those interventions in order, the £10 Christmas bonus continues for pensioners and those on selected other benefits—another thing that the right hon. Gentleman left me with. It has not been uprated since 1974 or something—certainly not for a while. There are an awful lot of corners of the system that could probably be looked at.

The point about consolidation is that we are trying to give people a statement of their rights in a single figure. It will be far more meaningful to them than saying, “You have a graduated retirement benefit of this; a gross additional pension of that; a COD of this; this bit is indexed by that and your scheme will index it by that, but it all depends on which period of service we are referring to.” The way we do it at the moment is not informative. It is baffling and, crucially, it is not fixed. That is the key point. The letters that we send to people say, “We think this is what your pension is going to be, but it might be higher or lower or might even be zero.” When we put consolidation in place, we can say, “We have taken all your past rights, converted them into a single number and this is what it is going to be.” The way we propose to do it will be much more informative than what is currently done.

To answer the right hon. Gentleman’s question in full if I have not already done so, clearly, we need to explain to people where the numbers come from. We will not just produce a number and say, “This is it; go away.” They will have to know where that number has come from and we will be able to do that. Most people will welcome the clarity that clause 3 and the associated schedule will bring.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.

Schedule 3 agreed to.

Photo of Katy Clark Katy Clark Labour, North Ayrshire and Arran

We now come to new clauses relating to part 1 of the Bill.