With this it will be convenient to discuss new clause 1—Review in relation to women born on or after 6 April 1951—
‘The Government shall conduct a review to determine whether all women born on or after 6 April 1951 should be included within the scope of the new state pension arrangements established by this Act. Such a review shall be conducted within six months of Royal Assent of this Act and a report thereof laid before Parliament.’.
I remind Members that even if new clause 1 is pressed to a vote, it will not be voted on until the end of proceedings, together with other new clauses.
Good morning to you, Mr Caton; we are all looking forward to many happy hours talking pensions in your presence.
I will start on a note of consensus, in the form of a word of thanks to the official Opposition. In my 16 years in the House I cannot remember another occasion on which so few amendments have been tabled to the substantive part of a Bill. When I saw the list of amendments for today and realised that the Opposition had tabled no substantive amendments at all to the first half of the Bill, which deals with the state pension created under clause 1, I thought, “Great, full tribute to them.” Pensions are a long-term business, and if we can achieve consensus on the state pension reforms, as we appear to have, that bodes well for all of our constituents, who need to know where they stand. Governments come and go, and it is important that pension structures are as stable as possible. Therefore—slightly in jest, but slightly seriously also—I thank the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East for regarding the first half of the Bill as more or less perfectly formed.
As for the clause itself, it does what it says on the tin:
“This Part creates a benefit called state pension.”
Clause 1(2) gives us the start date of April 2016 for that benefit. The Committee will be aware that when we published the Green Paper back in 2011 we envisaged a start date of 2016. We consulted further, we iterated and we did a lot of work within Government; earlier this year we produced a White Paper, and by then were wondering whether 2017 would not be a more realistic schedule. However, I am pleased to say that we worked very hard on the issue and by the time the draft Bill was published we were able to bring the date forward and indicate that we were looking again at 2016. We are grateful to all the members of the Select Committee for their pre-legislative scrutiny of part 1 of the Bill; they were keen that the date of 2016 be in the Bill and we are pleased to have been able to respond positively to that recommendation.
Clearly, as soon as a date is specified there will be a set of people who fall on the other side of it. That would be true whatever date we put in the Bill. In the past, major pension changes have taken place—in some cases, those changes were far more significant in terms of entitlements for many people than the ones that we are bringing forward here—with few or no transitional arrangements. We thought that we needed transitional arrangements, and a lot of our discussion on later clauses will deal with what they are. For example, we need special arrangements for people who have paid the married woman stamp and for people who have already built up more than a single tier. The thing that took the time, as it were, in getting this Bill right was the transitional arrangements.
Clause 1 simply says that from 2016 there will be this thing called the state pension, but getting from here to there is where the complexity comes in. We argue that we have produced quite a generous and comprehensive set of transitions. Clearly, there is always somebody who is on the wrong side of that line and who would rather be on the other side, and vice versa, but every time provision is made for another group to be treated under the old rules even if they come after the cut-off date, it adds further complexity and multiple systems end up running in parallel. The whole point of the reform is simplicity, so there is a trade-off here, and we believe that we have struck it right.
I note that we are considering new clause 1 in this grouping. To be fair to the hon. Gentleman, I will give him the opportunity to explain why he thinks that it is necessary before I explain why I think it is not. New clause 1 asks for a review, and so do new clause 2 and new clause 3. Having a review is not a substitute for having an opinion, so I hope that in moving new clause 1 the hon. Gentleman will not simply say “I am here to ask questions,” but that he will go further than that and suggest what he thinks the answers might be. He has commented publicly on this issue of the people who do not come under the new regime, and whereas his amendment simply says we should have a review, his public utterances say something rather different. In public he has said that the 700,000 women affected by this change should be able to opt in to the new system. However, his amendment does not say that, so I hope that in moving new clause 1 he will be able to explain—if that is what he thinks and what he has told the people that wanted to hear it—why when given the chance to amend the Bill to do that, he chose not to.
Many of the clauses in the Bill are less transparent than clause 1. Clause 1 is one of those few bits of legislation that one can read and know what it means, so I will not draw this out. Clause 1 enables us to create this new single, simple, decent state pension set above the level of the basic means test to provide a firm foundation for retirement saving and, for the first time, to treat women and the self-employed fairly in the pension system. It is the preface to a profound reform, and it is one that I am proud to commend to the Committee.
The Minister explained how we got to this point, and I will just take him up on a couple of points. He said, partly in jest, that he was pleased to welcome the Opposition’s general support for the state pension element of this Bill. I wonder why it is partly in jest. If we believe in consensus in pensions, it seems absolutely proper and correct that where there are not fundamental disagreements, it should be the normal way of proceeding that we do not oppose for opposition’s sake. I put that on the record.
The Minister referred to the 2016/2017 starting date. One might call this the starting date hokey-cokey; it was 2016 then it was 2017 and then it was back to 2016. The Minister explained why we got to this point, but I imagine it may have something to do with—and this can often be the case—the Treasury’s desires. One does not have to be a suspicious type to imagine that the Treasury might have had an interest in getting the increased National Insurance contributions windfall on to the public books a year earlier so that the 2015-16 accounts looked rather better than they otherwise would have. We have seen the same issue with the Royal Mail pension fund on a larger scale, so I wonder whether that played a part. None the less, we are where we are in terms of 2016.
We know that defined benefit schemes have some issues about making a transition in the timeframe that the Government have set. We heard some evidence to that effect in the Committee evidence sessions. The Minister referred to transitional arrangements, and indeed they are perhaps the most complicated part of the Bill. The Minister spoke of a trade-off between “simplicity” and a second noun that he did not quite mention, but I assume that it was “fairness”, which he mentioned in his evidence to the Committee last week. The Minister described a desire to prevent there being unfair losers. I am not sure there is such a thing as a fair loser, but none the less I take the Minister’s point. He is of course right that in any significant legislation cliff edges of one kind or another are inevitable. This is especially the case with pensions because rights accrue over a very long period of time.
This is where cost-neutrality comes in. I tried to push the Minister on this when we had a discussion last week. My understanding of a cost-neutral Bill is that it costs no more and no less than the previous system. However, we know that the new system will cost less than the current system. There will be a significant windfall to the Treasury, which has had some discussion already. What happens to that windfall to the Treasury from national insurance contributions remains a little fuzzy. We know that the public sector will have to absorb those increased national insurance contributions from employers and employees. What impact will that have on public services? Will it mean a reduction in NHS services or a further reduction in council budgets? For example, local government pension schemes will have to find £800 million.
There are issues here even about creating a benefit called the “state pension”. I suspect that we will go into some of these things in more detail as we go forward. Consensus is important if this is to be a reform for the long term. The Minister will have had many discussions with the pensions industry, pension stakeholders and consumer stakeholders about the importance of consensus. I have no problem with consensus, and where I think the Government are on the right track I am not ashamed to say so. The Minister did not mention that the previous Government were moving very slowly down the same path as the current Government regarding a shift to a flat-rate state pension. This Government have taken it forward much more rapidly. That is where we are.
Overall, our view is that a flat-rate state pension could be an improvement. The debate is on issues of simplicity, fairness and cost, and more fundamentally on encouraging an incentive to save. When we discuss this it often comes across very clearly that those on the Government Benches are enthusiastic about a flat-rate state pension because it will give people knowledge of what they will get from the state, and therefore they can make their own provision on top. It seems straightforward. As this goes forward there will be discussions in Committee about what people will save into as we move towards increased additional private savings.
Clause 1 sets out a benefit called a “state pension”. The Minister set down what I guess he considered to be a challenge on new clause 1. The Minister is not alone on the Government side in his predilection for encouraging the Opposition not only to do the job of the official Opposition, which is to ask questions and scrutinise Government legislation, but to lay all our cards on the table.
The Minister shouts “Any”. I will have to disappoint him, but I will do my best not to deny myself the opportunity to respond to that comment. The situation is that in this Pensions Bill there are cliff edges and significant losers. That is inevitable when you move rapidly to a single-tier, flat-rate system. The Minister says that he is keen to avoid unfair losers, and he produced figures on the cost of bringing 700,000 women into the system. Anyone who listened to the evidence of the 700,000 Group would have been impressed by their diligence in understanding the issues. They emphasised the effect that an average difference of £6 a week in the state pension for the rest of someone’s life can have on the living standards of people who have no other savings.
That question is worth considering. The Minister produced evidence suggesting that 85% of the 700,000 Group will be better off. In its evidence, the 700,000 Group said it calculated that 70,000 women will be worse off, and it argued strongly that having the same pension as men of the same age would make a significant difference the lives of those women in retirement.
The Minister rightly referred to the inevitability of cliff edges. However, we should put ourselves in the shoes of those who will lose out under the new system, such as those women. Retiring on a pension is for the rest of a person’s life; it is not a one-off loss. If the person is in the group that loses out, they know that for the rest of their lives they will get less than a man of the same age. I think that we would all see that as unfair.
The Minister rightly said that every time the system is adjusted another group that feels it is losing out is created. I have listened to the Minister’s arguments, and they have some merit. However, at times he does not give enough credit to the case of that group of women. The new clause asks the Government to review this part of the Bill and present their analysis to House. That is not an immodest suggestion, and it gives due credit to the campaign of that group of women.
A group of about 70,000 women campaigned hard on the 2016/2017 issue. They were going to lose out from the move to 2017 because they would have retired before the new state pension came in. They ran an effective campaign, and the Government moved the start date to 2016. I have suggested that might also have been something to do with the Treasury’s desire to get the increased national insurance contributions on the public books. However, I am sure that the campaign of those women, in the pages of newspapers and elsewhere, also played a role.
I see no problem with asking the Government to review the case of those 700,000 women and come back to the House within six months. After all, the Bill will not take effect until 2016—after the next election. That seems a fair way to proceed, and I ask the Minister to consider the new clause.
It is a pleasure to serve under your chairmanship, Mr Caton. It is quite an achievement for the Minister to have reached this stage. We have been discussing the imminence of this provision throughout the whole of this government, and it has been driven by the Minister.
The Minister is aware of my point of view. The Government have given people slightly false expectations about this reform, which, to some extent, explains some of the issues that have arisen. We have heard from groups that are aware they will not qualify for the new pension, and feel—some rightly and some less so—that they will lose out. It will be interesting to see what happens when the new pension is introduced, because I suspect that another group will suddenly discover that far from getting an additional £30-odd a week, that is not quite how it works. They might find that they already have a state pension of roughly that amount.
The reform has been made possible at a time of Government austerity by the fact that some building blocks of the system are already in place. If they were not, it would be a massive change for many people. Over many years, the different building blocks have been put in place, starting, arguably, with the graduated pension, way back in the mist of time. When some people look at their pension statement, they will see an entry for that. It was not a particularly generous pension, and anyone who still has it will see that it is not giving them much. Then we had the SERPS, and then the second state pension from 2002, which largely built on the SERPS’ legacy.
A number of people have had their pension built up over the past few years—that is extremely important—because they were earning above the national insurance lower earnings limit, even if they did not have the good fortune of being in an employer’s pension scheme; we know that the number of people in such schemes has been falling rather than rising in recent years. As a result, the difference that people will see in practice, whether or not they have been contracted out from the state scheme, is that they will have had that built up. That also gives us a bit of a lesson for the future.
I agree with the Minister that we need to try to get to a stage where such things are not chopped and changed constantly. From an academic and theoretical point of view, it is arguable that SERPS was a good scheme for many groups, particularly those who had a less-than-complete work record, perhaps because of caring responsibilities or for health or disability reasons. The scheme was structured in such a way that one had only to build up for 20 years, so it was easier for people to reach the full entitlement. For a number of historical reasons, that was largely taken apart in various ways over the following 20 years, which left the previous Government coming in to try to put some of that back together again. I would argue that that was done with S2P, in a slightly different way from before. We are now putting the final touches on that. For all of us and for future generations, we must not throw the issue up in the air again with some new idea, because pensions inherently need a certain degree of stability.
Regarding new clause 1 and the views of the particular group with whom we are concerned, they feel particularly that they are a group who has seen changes happen around them that they have not had much control over or time to adjust to, and which they had probably not anticipated earlier in their working life. They probably belong to a generation whose opportunities to build up other pensions were fewer.
Luckily, we have seen huge changes in pensions in both the public and private sectors, although sadly we are losing some of the advantages of some of those pensions for other reasons. It has not been so many years since a lot of part-time workers were not included in their firm’s pension scheme at all. Even if they wanted to contribute, they were not allowed to join. That was true even in parts of the public sector, where a lot of women—particularly women, but not exclusively—who worked part time through a large part of their working life did not have the opportunity to contribute to a pension scheme, even had they wanted to. That form of discrimination in gaining entry to pension schemes has been done away with, which is a good thing, though ironically at a time when probably for many—male or female, full or part-time—the opportunity to join any pension scheme has diminished.
Many people in that group have been through exactly that, and in their early working lives, will have had less opportunity to join a pension scheme if they were working part time alongside their caring responsibilities. There is an argument about how well trailed the increase in pension age was, with many people feeling strongly that they were not made fully aware of what was going to happen. Certainly for many of my generation, the assumption—right or wrong, fair or otherwise—that a woman’s pension age would be 60 was deeply ingrained; it was what we understood would happen.
My hon. Friend is setting out the particular issues relating to women and pensions very clearly, and the 700,000 Group are part of the debate. Does she agree that there is a perception problem for the Government? Auto-enrolment underpins the movement towards a flat-rate state pension system. Increasing the threshold for auto-enrolment every year in line with the personal allowance has taken up to 1 million women out of automatic enrolment in a pension scheme. The danger for the Government is that the perception continues that women do not get a fair deal from the pension system relative to men.
There is a great deal in that. Those of us who served on the previous Pensions Bill Committee—we are obviously gluttons for punishment—discussed at considerable length what would happen with auto-enrolment.
The issue of gender fairness and unfairness in pensions is fascinating. It can be looked at from different ends of the spectrum, as it were. It can be argued—and sometimes is—that women have had the advantage of retiring earlier despite their life expectancy generally being longer. On that basis, some people have argued that women have had a better deal. On the other hand, however, we know—and have known for very many years—that pensioner poverty, where it exists, is much greater for women, often, ironically, as a result of that very longevity.
Women live for longer and are therefore more likely to have used up any savings in their retirement, and many—certainly in the past and to some degree now—will have benefitted from having been in a partnership, but very often they will have outlived their husband. At that point, even if their husband had a pension from his employment, they are likely to get a widow’s pension, which is less. All those factors mean that women in retirement are often quite substantially worse off, financially, than men, despite—or perhaps because of—that longevity.
Many years ago, I started to research women and pensions in a very different climate from now. The big issues then were about how we got women into firms’ pensions, for example, because discrimination still existed. The big theme there was women’s poverty and lower incomes in retirement. That continued to be an issue, and was a big driver behind the introduction of pension credit 10 years ago, which was a quick way of dealing with pensioner poverty then by dealing with people who were already retired, rather than through a scheme such as the one before us today, which does not apply to current pensions at all.
It was predominantly women who benefited from the pension credit system, and we know that pensioner poverty across the piece has improved substantially as a result. Nevertheless, a lot of these women—this was the evidence they gave—feel that, for all sorts of reasons, they have not had the opportunity to build up other pension provision during their working life. They are now close to pension age. It has moved away from them slightly, but they are in the age group—roughly between 60 and 62—that will not be able to build up alternative provision.
The Select Committee considered the matter and accepted that the position that some people thought existed—the stark one that someone would get £107 while someone else would get £144—was not exactly how it was. Nevertheless, the Government’s figures suggest that women in this group would, under current pension arrangements—as far as the Government are concerned, they will be retiring under the current arrangements—will receive, on average, £127 a week in state pension, not the £107 they might have thought. Under the new pension arrangements, however, they would receive £133. Not everybody who retires after the start date will get the full amount, because it depends on their years of contribution, their contracted-out status and so on, so everybody is in a slightly different position, and that produces a median loss of around £6 a week.
On one level, it could be argued that that is not very much. If it is the correct figure, the amount involved for a relatively small cohort is not huge, but the impact on their hopefully many years of retirement to come would be substantial. The problem with medians, as always, is that we have to look at the range, and for some that range would be considerably different. For some in this group, it will not be a matter of simply £6; it will be considerably more, and they are anxious about that.
If we are serious about equalising, which is the intention, we should bear it in mind that the argument that those people will simply have to put up with it—compared with a man with the same date of birth—for the rest of their retirement seems to fly in the face of equalisation. For future generations and retirees, we are moving towards a more equalised pension age in the not-too-distant future, and younger women will expect to have the same pension age. These women, however, have experienced those changes in a working life that has not given them the opportunity to make the changes.
It has been suggested for some that when they reach state pension age in the period running up to 2016, they could choose not to take their pension at that point, but to defer and build up an increased pension. It is true that the current arrangements for deferral are generous, although they will not be so generous if these provisions go through. At the moment, however, financial advisers often advise people that it is a pretty good deal with higher interest than any other form of investment, which is perhaps rather odd—I do not know. I do not have figures for how many people are deferring on that basis.
Whether someone defers, however, will depend on whether they are in the financial position to do so, and that is another crunch point for this group, as they pointed out in evidence to this Committee and in written submissions to the Select Committee. Many of them made the point that to defer receipt of state pension in order to gain additional accrual is a luxury. For some people, it might not be; they might have a partner in employment or still be working themselves, in which case, it might be a sensible step to take. For some people, then, it might be reasonable, but there are those who are already on a relatively low income who, for a number of reasons, might already have left employment.
We know that the number of people in full-time employment—indeed, those in employment at all—drops off for those nearing state pension age for a whole host of reasons. Sometimes, that is to do with health and at other times it is to do with caring responsibilities. Of course, although at that age most women will have seen their children grow up, it is at that point that other caring responsibilities come into the field.
I want to pick up on the argument my hon. Friend is developing on women being more likely to be in poverty in retirement than men of the same age. Does she agree that that is at the heart of the issue and that those women who will lose out are those who, in many cases, will not have any other retirement income? As she says, £6 a week on average is significant, but that average obscures the fact that there will be those who will lose significantly for the rest of their lives.
That is the problem with taking a median figure and suggesting that that is fine, because that is not much. The need to take up caring responsibilities at that stage of one’s life is a big issue. We know that from social care and the benefits available to people who have to undertake those caring responsibilities.
Such caring is not always for elderly parents; it can be for a partner who falls sick. I have met a number of constituents who are in that position because their partner fell sick in some way. I spoke to a woman recently whose husband had developed Parkinson’s disease. She had returned to work after her children had grown up and had anticipated that she would work regularly up to her pension age, but then, because her husband was becoming increasingly unwell, she had to give up her job to look after him. They lost not only his income, owing to his not being able to work, but her earned income as well. There are certain provisions, such as carer’s allowance, that come into play, but that, at £57 a week, is not a substantial substitute for an earned income.
The position is not uncommon. Many people want to undertake these caring responsibilities; they will often say that they would rather do that than pay for somebody else or rely on the local authority, although its help can be useful. They positively want to care, whether for their partner or parent, or, perhaps in some cases, for a child with disabilities who is now an adult child with disabilities. However, there are severe financial consequences for doing that.
I apologise for interrupting my hon. Friend when she was in full flow, but it struck me that she is making a powerful case for new clause 1, which would call for the Government to conduct a review. We often talk in terms of medians and generalisations, which is inevitable on one level, but it seems likely that the figure of 70,000 women losing out by an average of £6 a week might hide some significant losses for women who have no other means of support. Does she agree that a review would enable the Government to dig down and find out exactly what is going on within that cohort?
I fully agree with that and refer the Committee to the Work and Pensions Committee pre-legislative scrutiny on part 1 of the Bill. We said that it would be helpful to look not only at the average impact, but at the range of impacts and the lack of being able to claim the new pension among the group of women.
We were aware that the position was not as black and white as had been assumed by some people. Some might be pleasantly surprised at the outcome in their particular case, but others will be in a difficult position for the rest of their retirement. That was powerfully put in the evidence that we received last week from Marion Rees:
“For the majority of people, a pension is not about how much they will receive over a period of 20 years or so, but how much money they have to live on that week.”––[Official Report, Pensions Public Bill Committee, 27 June 2013; c. 77, Q145.]
It is indeed the case that if someone’s pension income—from whatever source—is low, they will struggle to pay energy bills and rent, if they are still paying rent. A reasonable standard of living will be a struggle for women on a lower income. It is of no comfort to say, “If we take into account the fact that you retired a couple of years earlier than your hypothetical twin brother and you are likely to live a bit longer than that twin brother, that is fine and you do not have a problem.” That is cold comfort when someone is struggling with the cost of day-to-day living.
It strikes me that there is also an issue of contribution. On Second Reading, I heard one of the Minister’s Liberal Democrat colleagues describe the new pension as a “citizen’s pension”, but of course it is actually a contributory system, which I think most of us applaud.
A woman who has paid into the system her whole life to get the full state pension as it stands under the current system, and who, when it was possible, also paid into SERPS or S2P, will still find that, at retirement—despite doing all that saving, doing the right thing and playing by the rules, things that the Government are rightly very keen on—she gets less than a man of precisely the same age. The sense that they have done the right thing but not got the outcome that they would expect is likely to be a powerful one.
That is one of the issues that the women who gave evidence stressed. They described what it is actually like for them and the position that they find themselves in. A lot of people—men and women—have said to me, quite angrily at times, that they do not consider a pension to be a benefit, but something they have contributed to throughout their working lives. I suppose that that is partly because of the current debates over what is variously called welfare or benefit spending.
Very angry pensioners have told me that under no circumstances would they consider themselves welfare recipients. They have worked, contributed and paid in over their working life and they had good expectations. That is true for all groups, including this group of women. Contributions are an important part of our welfare state and have been since its inception.
We should not assess a contributory welfare state in terms of how much someone puts in and takes out in any given year, because it is about a lifespan. There are times in people’s lives when they pay more in taxes, national insurance contributions and so on than they ever get back at that stage. Because, however, the vast majority of the population survive beyond pension age, they expect to receive a pension and that is one of the biggest points to which they expect to contribute. In their retirement they expect to get back what they put in.
The evidence we received was clear that these women feel strongly that they have contributed. Many of them have achieved the number of years of contribution; it is not that they have not been working, contributing or credited with sufficient contributions. Some of them said that they had originally assumed that 39 years of contributions were needed to get a full retirement pension in their own name. For some of them, it is not a question of whether they have enough contributions—they have—but the fact that they are unable to get into the position they would have been in if they were treated in the same way as a man of the same age.
As my hon. Friend was speaking, it struck me that central to the issue are those in the last cohort before equalisation. I think she raised the issue last week. If the Minister is determined to push ahead rapidly—there are good reasons for that—with the new system, the danger is that the group of women in the last cohort before equalisation lose out in precisely the way my hon. Friend is describing.
The issue is very much linked to all the previous debates we had about the acceleration of the equalisation process and the position of those who, it would appear, perhaps did not get as much good information as they should have. Many of the women in this group do not feel that the suggestions as to how they could achieve that income regardless have been good enough.
I have already dealt with the complications on deferring receipt of pension. Obviously, someone cannot defer reaching state pension age, because that has been laid down. They cannot say, “I will not retire at 62 as I am supposed to; I will wait until I am 65,” but they can defer receipt of their pension and it will grow.
The problem that some of these women have is that if they are already struggling financially, not taking that pension for another few years will be extremely difficult. They have Hobson’s choice: either they struggle on with whatever income they have and defer so that they can increase the amount they get when they opt to take their pension, or they take the lower pension now, because they need it and cannot afford to wait. That is not an easy choice for them. They have often got into that position not through not having worked, but because of their health situation or caring responsibilities, however willingly embarked on. It is a bitter pill to take.
An average of £6 does not sound like much. If the total cost of including such women in the new pension arrangements is not very much, it would be reasonable to look again at whether it would be possible to do so. Women in such a position are sometimes told that if they have no income other than the hypothetical £127 a week, if these figures are correct—in some cases it will be less than that—that does not really matter, because their income can be topped up with pension credit. Given that one of the Bill’s stated aims is to reduce dependence on means-tested top-ups, for the women we are discussing such advice will be a bitter pill to swallow. They will find it ironic to be told that they will be all right because pension credit will exist throughout their retirement, as indeed it will probably have to.
My hon. Friend mentions means-testing. Is that not another reason to welcome a review of the impact of the new state pension on this group of women? The Government are keen to reduce means-testing, and there is some debate about how much they are likely to succeed. One way further to reduce means-testing would be to ensure that none of these 700,000 women has to rely on means-tested benefits. A review would enable the Government to gather information on how many are likely to apply for means-tested benefits.
That would be a useful aspect of a review. Means-testing is an important issue for many people, and it is the downside of having dealt with pensioner poverty relatively rapidly since 1997. For those who are just above the means-tested level, or for those who feel that their savings or other income is being eroded by means-testing, perceived anomalies cause resentment. It is important to move away from that situation, but we should not leave this group adrift and facing the prospect of surviving for the rest of their retirement—for some women, that might be as long as 30 years—on a greatly reduced income.
The Minister has applauded the cross-party consensus on the matter. In that spirit, it would be logical for the Government to accede to our request for a review of the situation for the women we are discussing.
All legislation, no matter how well constructed, will have problems around its edges. Over the years, the problems become clear, and people sometimes ask why they were not anticipated at the start because they seem obvious. Governments are always enthusiastic about creating legislation that appears to be complete in itself and not hung about with, “We will look at this bit again, and we might make changes,” but there is another side to that coin. Sometimes we have to make changes. Sometimes we have to be in a position where you say, “Broadly this was right. Broadly we are doing the right thing. Broadly people will benefit from this but there may be groups who are losers in that situation and that could have been avoided.”
We have a distinct group of people who, over the past couple of years, have been making a powerful case about the position they find themselves in. They feel that they are not being fully listened to. By looking at bald averages, some people are presenting this group’s circumstances so that it looks as if it is making a fuss about not very much. This is the time for us to look at the matter in depth. I would argue that that is what the Select Committee also wanted. It wanted to look at the range of impacts and to see whether there could be ways of mitigating them.
When the Government brought forward the proposals in their White Paper, an impression was given that everyone would get £144. That impression inadvertently got into the public domain. It is therefore not surprising that those who find that, despite having done the right thing, they will not get £144 feel hard done by. Again, my hon. Friend may agree that that is a reason for the Government, in a spirit of consensus and co-operation, to accede to the demand to go back and look at this and dig down into the detail of who is losing and by how much.
I suspect that that would be regarded as straying from the purpose of the clause. It was a popular Scottish comedy act involving a couple who played father and son, although they were not father and son. It became one of those catchphrases that are very popular in Scotland. We have some wonderful language which I am sure could become current in the whole of the United Kingdom. My purpose in using that word is to say that sometimes we overegg the pudding. We give people the impression that something will be a breakthrough. All Governments are guilty of this at times. We want to say that this is a revolution and everything will be changing from this point, when in fact what we have here is largely an evolution, a build-up and a step towards a position that will hopefully achieve the main aim, which is to make people better off in retirement.
However, people can only be better off in retirement if two conditions are met. First, we have to make the level of this single-tier pension sufficient that people do not have to rely on means-testing, an issue on which there will perhaps be further debate later. Secondly, people have to be encouraged to save and be able to save. There are a lot of issues associated with private pensions that we will also come to later. They still have to be improved if people are to believe it is worth saving. I am not convinced that people at the age of 30 think, “Oh, I will lose out on pension credit when I am 70 so I had better get saving now.” There are many other issues that stop people saving, and we have to address those, too.
My hon. Friend makes good points about the two halves of the Bill and the interaction between state pension and additional private pension savings. I am sure she will agree that, if the logic of the Bill were to simplify and clarify the state system so that people know what they will receive from the state and can make additional savings, it might or might not be workable. However, the women covered by the Bill will not have the chance to save privately to a significant degree before retirement.
I agree absolutely. It is an important issue for women. The problem is not the lack of time but the fact that they belong to a generation that has, for several reasons, found it difficult to create private pension provision. We know that the difference in pension savings between men and women is huge. It has had an historic effect, and affects those who are approaching, as well as those already in, retirement. Many such women have poor private pension provision and, in part, that is due to a lack of opportunities resulting from a disrupted work pattern, or being unable to join a pension scheme because they were part-time workers or on a certain level of income. The stark reality is that, without the state pension, retirement prospects for many women will be grim.
The women to whom my hon. Friend refers would have been in the midst of their working lives when the Thatcher Government went on a great drive to encourage private personal pensions, many of which were caught up in the mis-selling scandals in the 1990s about which we know so much. Such women have been through many changes in the pensions landscape, several of them not for the better and not to the benefit of their pension savings.
I felt strongly about the issue at the time, not only retrospectively. I remember the coming of the freedom to leave SERPS and to take up another form of pension. I was working as a solicitor at the time, and I recall discussing such matters with my secretary. She was not much younger than me, and she grasped that opportunity mainly because it meant she would be paying out less. Her children were coming into their teens, which is an expensive time as parents know. She did not have a big income—obviously, I was a mean employer—and her husband was a manual worker who was in and out of work. She said explicitly that such an arrangement allowed her to have more money in her pocket at the time, and she left SERPS when able to do so, as I am sure many others did. I am not sure there was ever a way of forcing people to keep up their payments—they were supposed to choose whether to stay with SERPS or to move to a personal pension. In many cases, the actual product has been very poor.
Soon after that time, I had to leave SERPS because I became a partner in the firm, which meant that, technically, I was self-employed—although that did not involve having much influence in the firm; however, that is how law firms operate. After leaving SERPS, I thought I should buy into a personal pension scheme. However, having seen schemes grow at glacial levels or even shrink sometimes, I reached the point where I thought it would be better to put the money under the bed. In fact, I did not top up the pension scheme because the performance was so poor. Many people may well have been in that position.
Sometimes, we need to be looked after for our own sake, and here I would be quite directive, given the opportunity, and not allow people to opt out of auto-enrolment. We need to be guided on this matter when we are younger, because the last thing we want to think about when we are, say, 30 or 40 is that we are going to get older and may need a pension.
I hope we will have the opportunity to consider the position of this cohort and look in detail at their range of circumstances and what lies behind the figure. People may say, “Well, it is only £6 a week and they can make that up”, but for many the suggestions made for making that sum up are not viable. I hope we can look at this issue again before the legislation comes into force, because although the start date of 2016 is earlier than the previous date, it is still some three years away, so there is ample time to refine the measure and get it right for the point of transfer.
I urge the Minister to look again at this issue and provide the opportunity to reconsider. Perhaps at the end of the review he will still be satisfied that he is doing the right thing, but if there were at least the opportunity to reconsider, the group of women in question would feel that the Government have listened to their case, properly and fully investigated it, and come to a decision. I hope that, having considered the matter, the Government will accept that the perfect storm of circumstances that has affected this cohort of women means that we should look positively in their direction and allow them to choose the old or the new system, whichever will be the better for them. At this stage, we are asking not for such an amendment to be made, but for the information to be fully researched and considered, because in the two and a half years between now and the Bill’s implementation, there will be ample opportunity to reconsider.
I sense no desire that the clause should not stand part of the Bill, which is a good start—a note of consensus—so I will focus in my response mainly on new clause 1. It would require us to conduct a review of the position of all women born on or after 6 April 1951, which is a slightly broader scope than is intended—the 1951-53 group—and report within six months of Royal Assent. To paraphrase loosely, the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East, who leads for the Opposition, said, “This is just probing. I am an academic. It’s our job to ask”—
To correct the record, I never mentioned academia at all. I should be careful, if I were the Minister, since I suspect that he spent much longer in academia than I did.
I meant it as a compliment, but never mind.
The hon. Gentleman says that his job is to probe, not to have a position. He said that we were trying to get him to lay his cards on the table, but he certainly would not be doing anything like that. The dilemma is that if Members lay their cards on the table not in the House but outside it, to concerned people, there is a bit of tension. On 24 May, the hon. Gentleman said:
“We believe to ensure universality the Government must address the unfairness of 700,000 women being deemed ineligible…by enabling all men and women who reach the age of 65 after the implementation date of 2016 to receive the single-tier pension.”
There is a risk that people hearing that might have thought that he meant it. There is a danger attached, because since then the shadow Chancellor has said, “We’re not spending any money on anything unless I say so.” However, what the hon. Gentleman said is on the record now, so 700,000 people—to pick a random number—might think that if Labour were in office, they would do this; but given the chance to amend the legislation they do not do it, but ask for a review.
Yes. When better to find out what the Opposition think than when we are scrutinising the Bill in detail? It is no coincidence that the first three new clauses we are considering all ask for a review. As I said at the start, having a review is no substitute for having an opinion.
Let us look at what is proposed. The fundamental proposition, with which I disagree, is that this cohort of women is uniquely disadvantaged. I want to compare them with two other groups: women who reached state pension age before April 2010, and those who do so after April 2016. In other words, there is a first, middle and later group. The argument is that the group in the middle is uniquely disadvantaged and should have special provision in law.
Let us look at the three facets of their state pension. The first is the age at which they can get it; the second is the number of years they have to build up contributions; and the third is whether they are in the single tier or not. Let us give each of those groups a score for how well or badly they do. For the post-April 2016 group there is good news; they get single tier and a tick there. The bad news is that their state pension age could be anywhere between 63 and 68. Somewhere in the middle is the fact that they need 35 years for a full pension. For them, it is one good, one bad and one somewhere in the middle.
For the group of women we are discussing, the good news is that they need 30 years to get a basic state pension. The middling bad news is a pension age of 61 to 63, which is not as high as the ones to come, but better than the ones before. The bad news is that they are not in single tier. For them, there is one good, one bad and one somewhere in the middle.
For the pre-April 2010 women, the bad news is that they need 39 years for a state pension and they are not in single tier. The good news is that they have a state pension age of 60. Against the three criteria, the cohort that might most legitimately be upset is not the group we are looking at, who have some good, some bad and some middling things; it is not the post-single tier people, who have some good, some bad and some middling things; it is actually the pre-April 2010 retirees. The proposed new clause would not do anything for them. It basically says, “Tough. You have already retired. Just live with it.” All the women in that group had in spades all the things that the hon. Member for Edinburgh East described. They had less time under the state second pension and they were more likely to have worked when women were not even allowed into pension schemes. What did the previous Government do for those women when they changed the system in 2010? Absolutely nothing.
It is very odd to say that the group under discussion is uniquely disadvantaged and needs special provision in law.
The Minister says that this group is not particularly disadvantaged. However, many of the constituents who attended an event I held recently with the shadow pensions Minister were very concerned about the changes. The crux of their argument was that they would be treated very differently from a man who might live next door to them and have the same date of birth and financial situation. Does that not warrant a review in five years’ time? The Minister says they are not disadvantaged, but their concerns are very legitimate.
I absolutely understand. That is like the point made by the hon. Member for Edinburgh East. There is a perception that they are missing out on Christmas. I do not mean that rudely; that is the perception. They have seen the figure of £144. They know what they are getting or are going to get. They see a big difference and think it is not fair and that they are missing out. As the review we have already done shows, the typical difference is about £6 a week between what they will get under the current rules and what they would get if we applied the new rules to them. I absolutely do not belittle £6 a week. I would not dream of trivialising £6; it is an important sum of money. However, the strength of anger is based on the sense that it is £107 against £144. In most cases it is nothing like that. That is the first point.
The second point is that we have looked carefully at that group. We have conducted a review and published a detailed analytical note on the position of those women, and it all depends on the comparison that is made. Compared with a man born on the same day, the women in question would get one good thing and one bad thing. The good thing is that they would get their pension at 61, 62 or 63. The bad thing from their point of view is that they would not get the single tier. My thought experiment on Second Reading was that, if we were treating them unfairly compared with a man, we could put a tick box on all the forms so that they could request to be treated under the men’s rules, not the women’s rules. If we did that, 90% of them would hate me. Perhaps 100% do; I do not know. [Interruption.] I see a wry smile over there.
If we are being so unfair to the women in question by not treating them the same as a man, there is an open invitation. We can put a tick box on the form and they can take the deal that men get, and 90% of them, give or take, would be wrong to do that. That does not suggest to me that we are being unfair to them relative to a man. When compared with women on either side of them in age, as I have said, they will get some things that are better and some things that are worse, but they will not be uniquely disadvantaged. That is really what I am trying to say.
Is it not then fair to say that, if there are winners and losers, in five years we will have a review to show those pensioners the degree to which they may have been advantaged or disadvantaged?
I would make two points in response to that. First of all, we already pretty much know the answer to the question. Some of the women we are talking about are already pensioners—if a woman was born in 1951, she will already be drawing a pension. By the time the Bill receives Royal Assent, a woman born in 1952 will be drawing a pension. It is not as if we need to wait for five years; we have the data. We know people’s national insurance records, and we know more or less what the answer is.
Secondly, the new clause does not ask for a review in five years; it asks for a review now, to be completed within six months of Royal Assent. The timing is important. If Parliament approves it, the Bill should get Royal Assent by Easter 2014, so the new clause would require us to have conducted a review and reported on it by October 2014. For understandable reasons, the hon. Member for Edinburgh East says we have “ample time”—that was the phrase she used. However, she has never been anywhere near a Government computer system. The idea seems to be that we could complete a review in the autumn of 2014 and then perhaps do something about the findings in primary legislation. The Bill will take a year to go through Parliament and we have an election in 2015, so we would have to whizz something through by Easter 2015. There is no way we could then deliver the changes in April 2016, especially if we were to conduct the other two reviews that the Opposition want as well.
The review proposed in the new clause would delay the Bill. That would create a new set of women who would say, “Hang on a minute, it is starting in 2017 or 2018, but I am the wrong side of that line—and, you swine, you have put my pension age up as well, under the 2011 Act.” The practical implication of new clause 1 would be a delay, with more women saying that the measures were not fair and more women whose pension age we have increased at relatively short notice saying, “And I do not get the single tier, either.” I always wanted to be able to tell any women for whom I had put up the state pension age that she would get single tier. I can say that at present, but I could not if we were to conduct the review proposed in the new clause.
Sally West of Age UK was asked on “Money Box” what she thought on this issue. She said that she sympathised with the group affected—as indeed do I—but went on to say this:
“I think it would be quite complicated to give people the choice”.
I shall explain briefly why that is the case. What is proposed is that we get to the men’s state pension age of 65 and at that point say to the women in this group, “Which pension do you want, the new one or the old one?” We do 700,000 calculations and, as seems blindingly obvious, they pick the bigger number—of course they do. However, the single-tier pension is a package, not just one element, so what happens then? Let us suppose that the first thing that happens—God forbid—is that, the day after that, the husband of one of those women dies. She thinks to herself, “I will now get a widow’s pension,” but I will have to say to her, “Sorry, you are a single-tier pensioner. You do not get a widow’s pension any more.” She will say, “That is not fair. I have only just changed, so can I change back? Why did you not warn me?” We would have to assemble comprehensive advice, information and so on. Nobody knows whose husband is going to die when, so how could people make informed decisions?
To give an even more complicated example, single-tier pensioners will not get savings credit. Let us suppose that, on day one, someone chooses what looks like a higher number; a year later, when they apply for pension credit because their husband has retired and their family income has dropped, we will have to give them some meagre amount of pension credit, or else nothing at all. They will ask, “Why am I not getting pension credit? My neighbour next door is,” and we will say, “You are a single-tier pensioner, so you do not get savings credit.” They will ask why we did not tell them, and we will have to say that we did, but that they did not know when they made their choice whether, two years down the track, they would hypothetically be entitled to savings credit. If someone can find me anybody who can tell me whether they are entitled to savings credit on that same day, I will give them a chocolate bar; the idea that someone would know years ahead whether they might be entitled to savings credit is nonsense.
There would, then, be people who thought that they were making the right choice when they chose a pension two quid higher or six quid higher, but who would thereby deprive themselves of a widow’s pension or 15 quid of savings credit. The choices are not as simple as is being made out; they are complicated and difficult. Some people could make the wrong choice; what would happen then?
I do not wish to press this point too hard, but to return to the argument made by the hon. Member for Edinburgh East that a particular set of women have a pretty rough deal with their pensions, we should bear in mind that those women spent 13 years of their working lives under the previous Government. If they are now getting to the age of 61 or thereabouts with lousy pensions, there is a shared responsibility for that. The Opposition are asking us to fix the situation for those women after they have retired, but they did not address that problem during the 13 years that they were in government.
The Minister speaks of a shared responsibility, and I believe that the Opposition also want the system to be financially neutral. If there were a choice, although some people would get it wrong, surely most would be inclined to choose the pension that was financially better packaged. Money would therefore have to be saved elsewhere. Where would that be, according to the Opposition?
As my hon. Friend perhaps suspects, there is not one. They are asking for a review rather than for the system to be amended, because such an amendment would have a cost to it and the money would have to be found from somewhere. The Labour party has said that it will only spend money that it can fund, and as it cannot fund this, it is just dangling a carrot. A group of people are concerned about the matter and the Labour party is sympathetic with them, as am I. It is dangling the carrot that it might do something about it, but there is a price tag attached. That may be £150 million to £200 million initially, going up to £300 million at peak and totalling something like £4 billion over the lifetime of the policy. It serious money even in pensions terms, but there is no suggestion of where that money might come from.
I am disappointed that the Minister verged on the Government’s typical ground-zero argument that nothing has happened for the last 13 years, because I recall the changes. For example, S2P is advantageous for many women, especially carers, and there were the changes that came in during 2010. In fact, the previous Government gave a lot of attention to pensions. I ask the Minister to consider the additional income that has come into the Treasury through the contracted-out arrangements, none of which appears to have been earmarked for any other purpose. It may be worth looking at that as a possible source of this funding.
I will obviously come back to where the national insurance rebate money goes; again, I am not sure whether we just heard a spending commitment to use that money for that purpose. The hon. Lady seems to want to have it both ways. She says that the previous Government did great things for women and for pensions, yet here is a group of women born between 1951 and 1953, who are so adversely affected and who have such lousy pension histories that they need special treatment. They cannot both be true.
I understand the Minister’s desire to draw the previous Government into this. The women in question have been accruing pension rights over a long period, so it is not about one Government or another, it is about Governments over the whole period of their lifetimes. I do not think it is helpful to focus on the previous Government or even exclusively on this Government. Our argument is that over a period of time, these women have experienced a number of changes, and that there might be a case for reviewing their position under the Bill. I would not make the matter as partisan as the Minister has.
My point is simply that if this cohort of women have particularly bad pension histories, is the right time to fix it after they have retired, as the new clause suggests, or was it in the 13 years, or indeed the 40 years, before they retired? My suggestion is that as the Labour party held the levers of power for a significant chunk of that time, if these women have retired on lousy pensions, a sense of responsibility is called for.
I do not know if hon. Members can remember the start of the hon. Member for Edinburgh East’s contribution, but she said something that I agreed with—that public expectations are important. She is quite right that £144 is a figure that is out there. It is £144 for 35 years, for example, less a one-off adjustment for past contracting out. The communications problem is that nobody knows what contracting out is or whether they have contracted out or not. Getting the message across is therefore a challenge.
A review that did not have to report until the autumn of 2014 would mean that we could not even communicate with people when the Bill received Royal Assent, because we might change the system again. Just imagine that we sent letters out to people saying, “This is the new pensions system”, and then six months later we said, “Guess what, we’ve had a review and it’s changing again”. People would go mad. We need certainty, and all the calls for reviews after Royal Assent just delay the start and prolong the uncertainty. It is quite clear that we do not want to do that.
The hon. Lady rightly said that people get offended if you suggest that pensions are a benefit. Clause 1 uses the word “benefit” for a specific reason. The term “contributory benefit”, is from the legislative framework of the Social Security Contributions and Benefits Act 1992. Section 20 of that Act is entitled “Descriptions of contributory benefits”. Contributory benefits under part II of that Act are listed, and the sixth is retirement pensions. Even the National Insurance Act 1946 talked about the state pension as being a benefit. Of course, when we talk about a company pension scheme and what benefits one can get out of it, nobody is offended by that language. That is what we mean by benefit, and that is why we use the language.
Finally, the hon. Member for Edinburgh East said that we needed to do more for women, and I absolutely agree. In the first few years of the single-tier pension, 700,000 women will gain about £9 a week. We agree that that group have been poorly pensioned in the past and need effective action. That is the point, however; they do not need a review, a delay or more uncertainty. They want to know where they stand. Today’s pensioners—the women born between ’51 and ’53—have benefited from our triple lock and will continue to do so.
I sense that the Minister is about to sit down, so I will take this opportunity to return to something that he said at the start of his closing remarks. He pointed out that the new clause referred to women born post-’51, not only to those in the ’51 to ’53 bracket, on whom we are concentrating on this morning. Although our main concerns are about people in that bracket and those who are close to retirement, the proposals will affect all women—right down to those who are, like me, in their 20s—who will hopefully receive the STP as long no other changes are made. The Government’s figures show an eventual decrease, compared with the current system, in the average amount that a woman will receive each week. Those in their 20s will receive significantly less under the new system than they would under the current one.
The hon. Lady has rightly declared her interest. In 40 or 50 years’ time—whatever the state pension age is by that time—state pension spending will be a bigger share of GDP than it is now, but not by as much as it would otherwise have been. We will have had 40-odd years of auto-enrolment and mandatory employer contributions to workplace pensions. We are making the state system more sustainable in the long term, and in parallel to that we are ensuring that people have decades’ worth of something else on top. That is probably the only credible combination. We could make more generous unfunded state pension promises but, frankly, I do not trust my grandchildren; I do not want to rely on their good will to pay me an unfunded state pension, because I do not think they will. They will be paying for my social care, my health care and all the rest of it. We have to ensure that people have not only a decent state foundation but a pension of their own on top.
Clause 1 looks relatively uncontentious, although we have the opportunity to divide on new clause 1 later if we wish. I do not believe that the group we have discussed are uniquely disadvantaged. There are positive and negative aspects to their position. They have benefited from our triple lock, which is something that we should be particularly proud of. I do not think that anybody would consider the complexity, delay and uncertainty that would result from the new clause to be a good thing.