At the end of this morning’s sitting, I was beginning to reply to the hon. Member for Dudley—[Hon. Members: “Burton.”]—the hon. Member for Burton who is from Dudley. The hon. Gentleman was intervening from a sedentary position and I found it difficult to hear him, because of my blocked nose. We left it with the hon. Gentleman suggesting that the reason was his thick, Dudley accent, but I am the last person in the world to pass comment on someone’s thick accent. It was more the blocked-up nature of my nose and ears.
We were beginning to get into some of the detail of new clause 2, tabled by the Opposition, on some of the implications of the transitional arrangements. The Minister had rightly and importantly emphasised that the transitional arrangements are the most difficult part of the state pension aspects of the Bill. It is important to get the balance right between moving to a new system and, to use the Minister’s term, honouring the past. There is an issue with those who are close to retirement and had a legitimate expectation that they would need 30 years of contributions.
The hon. Gentleman has used that phrase on a number of occasions and I wish he would finish the sentence. On needing 30 years, the thing people need 30 years for is different from the thing they need 35 years for. So we are not asking them for a different number of years for the same thing, but for something else. Does he agree?
Yes, I agree with the Minister. It is important to add to that, however, which the hon. Member for Burton did not do. The danger is that we will talk about this purely in terms of moving from the basic state pension to the flat-rate state pension. We have to be aware of the ending of the second state pension. There can be people who were thinking about their retirement, and planning for it, on the basis of the flat state pension and S2P. People might fall into the group of those who had a legitimate expectation of 30-year, flat-rate state pension, as well as a significant second state pension accrual.
The Minister is aware of what appears to be a political consensus, which emerged in part from the 2011 discussions, on the importance of giving people time to plan. Ten years’ notice seems to be the general feeling regarding changes to individual state pension age. The new clause asks that
“The Government shall conduct a review to determine the costs and benefits of phasing the transition to a 35-year full pension requirement via an interim requirement of 30 years. Such a review shall be conducted within six months of Royal Assent of this Act and a report thereof laid before Parliament.”
My hon. Friend the Member for Edinburgh East referred to earlier discussions with the Pensions Minister, I think on the Select Committee. My hon. Friend intimated that the Minister was, at that stage, keen on 30 years of contributions to be included in any Act. We have now moved to 35, and the danger is that people who have planned for 30 years and are close to retirement—they have had notification in the past that 30 years is what they need to get a full state pension—find that they now need 35 years.
May we bear down on that a little? Clause 2 increases the number of national insurance contributions qualifying years from 30 for a basic state pension to 35, and introduces that minimum number of qualifying years, which the Minister has pretty clearly indicated will be 10 years, rather than between seven and 10. We accept that the impact on most people of the increase in qualifying years will be limited. The Minister set out a fair case regarding the fact that individuals are going to be working longer, so increasing the qualifying years is not in itself necessarily a bad thing. However, it is not clear to me that the Government have published an impact assessment on the group who get caught in the jump from 30 years to 35 years. I know that the Government have done that for other groups, including the 700,000 women affected.
I just want to probe my understanding of the issue with the Minister. When he gave evidence to the Select Committee on Work and Pensions, he talked about the change from 30 years to 35 years saving about £1 billion. If that figure is right, will he say how the £1 billion is calculated, what period it covers, and what percentage of the total pension spend that would be over the years for which he has made that calculation? If £1 billion is accurate, which I am sure it is—it depends on what it is accurate in terms of; it is only relevant insofar as it is £1 billion of what—that is a significant saving, but there is a general issue with the Bill.
One does not complain about the Government wishing to focus on the Bill’s positive aspects. However, the Minister previously suggested a reluctance to see the Opposition’s job as asking questions and probing the legislation, but I will continue down that route and say that there is a wider issue that is peripheral in terms of the transition from 30 years to 35 years. I have been very clear about the winners and losers. When the pensions White Paper was published in January, it was received by the media, then filtered downwards, that everyone would get £144. It is important, from the point of view of the Government and the Opposition, that we have clarity on that point. I am interested to hear whether the Minister thinks—he mentioned 30 years for something, and 35 years for something else—people will lose out in the shift to 35 years. In saying that, I accept that the state pension age is set to rise, and there is no doubt that increasing the number of contributions somewhat in line with that is sensible.
At this point, I want to comment on the transitional arrangements; the Minister will no doubt come to this issue in more detail. I also recognise the steps in the Bill that, it is fair to say, continue what the previous Government were doing on recognising other forms of contribution beyond workplace contribution. I am talking about carers and stay-at-home mothers, and that is to be welcomed. Of course, under the increase from 30 years to 35 years, it is fair to say that a small number of people will not have enough time to make up the required 35 years, as they are too close to retiring. That is the cohort on which the new clause, which asks for the Government to review the issue, focuses.
In recent years, people in that cohort may have been passively or actively informed of the requirement for a full state pension of 30 years of contributions. I say passively—through correspondence from the Department for Work and Pensions informing them that they only required 30 years, and that is something we have to take cognisance of. Reducing the years of contributions from 44 years to 30 years and from 39 years to 30 years was a pretty radical shift undertaken by the previous Government. It changed the pensions expectations for a substantial number of people. Again, I take the Minister’s point that such a reform will mean that there are inevitably losers as well as winners. The question for him is whether he thinks any of it will result in unfair losers, to use his terminology.
I think I am right in saying that political consensus has emerged about 10 years’ notice. The Turner commission said seven years—or was it 10? Either way, following the Pensions Act 2011, 10 years is now the consensus on the time that people need to prepare. I suspect that we will get more into that issue when we come to the clauses that refer to the state pension age.
We would like the Government to review the circumstances of those due to retire prior to 6 April 2021. To take up the point of the hon. Member for Dudley—[Hon. Members: “ Burton”.] I now have Dudley on the brain, which I am sure is no bad thing.
I hope I have helped the shadow Minister through his difficulty with identifying the MP for Dudley or for Burton. His earlier comments about the Bill’s general aims, he was half endorsing those aims and half criticising the way in which the Pensions Minister had presented the positive side of them. On the pensions system, does the hon. Gentleman not agree that both his constituents and mine share the goals of simplification, clarification and a practical move towards making sure that saving really pays? That ultimately is what the Bill is all about and what our constituents want to hear. Will he endorse those goals?
I am struck by what the hon. Gentleman says—this issue goes back to Second Reading—as well as by some of the Minister’s remarks about the Government’s expectations of the Opposition. The official Opposition are taking a very constructive approach to the Bill. I am on the record already today as saying that the move to a flat-rate state pension is a good idea. However, we would not be doing our constitutional duty if we did not probe the way in which the Bill will impact upon UK citizens. Our job is to try to draw the Government out on the losers as well as the winners.
I said a moment ago that one does not complain about the Government focusing on the positive aspects of the Bill; indeed, if we compared the approach to this policy with that to most others we would find an unusual degree of constructive consensus. It is unfair—to use a term much deployed this morning, as it no doubt will be this afternoon—to expect the Opposition not to raise questions about legislation, especially since we are on the record as saying that there is much to be said for moving to a flat-rate state pension.
The hon. Member for Gloucester mentioned simplicity, clarity and incentive to save. Simplicity is a good thing, and moving to a flat-rate state pension will make things simpler—that is one reason why we think it is a good idea—but the issue is when it becomes simpler. We have to be clear on that; we will have two systems running in parallel for a significant number of years—probably a generation if we define that as around 30 to 40 years—and it is the Opposition’s job to say to the Government, “Yes, simplicity is an excellent idea, but when will the system become simpler?” The Pensions Minister, I know, is well aware of that issue, and again, one does not criticise him for not talking in detail about the two systems running in parallel: his job is to focus on the thrust of the reform, which he endorses. However, it is the Opposition’s job to lay out some of the potential pitfalls and imperfections in the legislation. Academia was mentioned a while ago in our debates; I taught a little constitutional history and I understand that the official Opposition’s role is to scrutinise legislation and, I hope, to make it better.
The incentive to save is a significant issue: it is the whole logic on which the flat-rate state pension proceeds. It is in the Bill and the Minister and others have referred to it repeatedly. We will come on to that issue as we go forward with the Bill, but I will raise again the question I raised on Second Reading: saving into what? To give the Minister credit, he is starting to move on some of the issues regarding making auto-enrolment work for everyone, which the Opposition, many consumer groups and others have been encouraging him to do.
The hon. Gentleman mentions his concern that simplification does not come immediately because there will be two parallel systems running. What alternative would he propose to that?
Since we think that this system is a good idea, we are not suggesting that the Minister should change track for an alternative. It is our job, however, to point out that, when talking about simplicity, which is something that we all favour, the system will probably not become simpler for a generation.
There seems to be a philosophical difference between me and the hon. Member for Gloucester: I do not see the Opposition’s efforts to try to improve legislation by pointing out imperfections in the Bill as criticism. That is not the same as us saying that the Government should not proceed with that part of the Bill; it is the Opposition’s job to dig down into the detail. If that is not our job, what is the point in us being here? We are on record as saying that the move to the flat-rate system is a good idea, but it is incumbent on us, and all members of the Committee, to tease out the Bill’s implications.
I shall do my level best to speak more clearly this afternoon. On the hon. Gentleman putting things on the record, both this morning and this afternoon he has made considerable play in raising his concerns about those people with 30 years of entitlement who will therefore not get the full 35 years’ worth. There is obviously a substantial cost in rolling down the single-tier pension to those people. If he thinks that that is such a problem, will he confirm whether a future Labour Government would make the single-tier pension available to everybody with 30 years’ entitlement?
I would be the last person to accuse anyone of having a strong accent. Let me take on the hon. Gentleman’s question. If he reads our new clause, as I am sure he has, he will see that it suggests that the Government review this matter. On who the losers will be, will the Minister say whether I am wrong in saying that there will be losers?
This morning, we finished with the hon. Member for Burton saying that people may not get the full entitlement for 35 years’ contribution, but they will get 30 years plus 30 thirty-fifths. Before he returned, I said to the Minister that there is the issue of the interaction with the state second pension, which is to be abolished. As the Minister said in his opening remarks, the transitional arrangements are the grittiest and I would be interested to hear his calculations on whether there will be losers from the shift to 35 years.
I often find that Government Members are keen to tease out Labour’s manifesto for the general election. I understand their enthusiasm, because that will be a very exciting and important document, but I am afraid that I cannot go further than I have so far in fulfilling those desires.
Does not the hon. Gentleman recognise that it is not just about Government Members finding out what might be in the manifesto, but about the people out there too, because they need some certainty on will happen. One of the big problems with the whole business of pensions has been that it has always been up in the air and every time that it seems that a position has been arrived at, it changes.
Thank you for that guidance, Mrs Main. I was going to suggest to the hon. Gentleman that this Committee is for scrutinising the Bill before us. If you will indulge me slightly, Mrs Main, I must say I do not have people coming up to me on the street demanding to know what will be in any party’s manifesto at the next election. We are some way away from a general election and our job here is to scrutinise the Bill.
There is a significant degree of consensus in the Committee, yet one feels that the Government would prefer it if we just endorsed everything on the Order Paper without scrutinising it. I do not think that that is good for legislation or good for government.
The hon. Gentleman is quite right that all legislation is imperfect and that the duty of the Opposition is to try to make it less so, and that is presumably the point of his new clause. Given, however, that he is asking the Government to conduct a review to determine the cost and benefits of phasing the transition, which will take time and cost money, he must have some idea of what the costs and benefits might be. Otherwise, he is asking the Government to undertake a review about which he understands nothing at all.
I thank the hon. Gentleman for that contribution. When I referred to imperfections in legislation, I was trying to draw out the Burkean part of the Conservative mind—I cannot speak for the Liberal Democrat Minister. I know that one of her colleagues, the hon. Member for Hereford and South Herefordshire (Jesse Norman), has written a book that I think should be subtitled “Reflections on the Thatcherite Revolution”. Even on a Bill where there is significant consensus, however, it is important to tease out the implications.
I will try to answer the question from the hon. Member for Tamworth—which was where, of course, Peel made his famous declaration. I know about costs and benefits of a review. Our new clause states that such a review should be conducted
“within six months of Royal Assent”.
The Minister’s response to that, in respect of the new clause 1 proposal, was that it would mean six months. I am not privy to how long a review would take—I can only take the Minister’s word on it—but his earlier answer was six months. Is it beyond the wit of man? It could be reported to the House after six months, but the review would not necessarily have to take six months. We are just trying to dig down into the detail. He said that transitional arrangements were tricky. I would say it is the most granular bit of the Bill.
The hon. Gentleman is at liberty to ask the Government to undertake a review, but he must agree that his case would be much stronger if he could explain why that review should take place and why there might be costs and benefits to the transition he is after. If he cannot explain why he wants the review, why should we have one?
We know that, on the Library’s calculations, by going to 35 years, just under 100,000 people a year will be less eligible for the new state pension. That means that fewer people will be eligible for the full state pension than under the current system. Just under 100,000 people is not an insignificant number. We know as well that for every year a person is not in the system, they lose £4.11 from their retirement income.
On contributions, we have the issue of the 10-year period. We have not yet explored the Minister’s intention to opt for a 10-year period, but my view is straightforward: the Opposition believe that there will be losers in the shift from 30 to 35 years. He uses the term “unfair losers” and talks about people not being “uniquely disadvantaged”. The question is whether expectations of what one gets in retirement are such that one needs sufficient notice of changes. We called for this review and put down this new clause purely to ask the Government to dig a bit deeper—it is no more complicated than that.
The calculations are pretty complicated, and it would be a useful bit of public policy to clarify who will lose and by how much. That is analogous to the previous conversation about the ’51 to ’53 group, in that the Minister has done an impact assessment on the 700,000 women and concluded that the vast majority would be better off and that those who would be were worse off—about 70,000—would be worse off by an average of £6 a week. [Interruption.]He shakes his head; if he wants to clarify, I would be happy to give way.
Just to be clear, the median between the two groups is £125 against £131, so taking the whole group before and the whole group after, the difference is £6. That figure is not the average loss of the people who lose.
I stand corrected. It is the median rather than the average, which is a better index of bunching around the most prominent group in that range. The issue remains, however: how much is lost by the biggest losers? It is a big issue not because it means the Bill should be changed, but because the median and the average can disguise pretty significant losses, often for the people who can least afford it. I take the Minister’s point. He is right that in a Bill of this complexity, such things will inevitably happen, but nevertheless clarity would be useful.
I shall finish on the point made by the hon. Member for Tamworth. I see it as the Government’s job to dig down and provide the detail on the potential losers. The Government did an impact assessment on the 700,000 women, and I do not think it unfair to ask them to do one on the jump from 30 to 35 years. I think the Minister would have preferred it had 30 years remained the qualifying period for a full state pension, but financial and other circumstances have led us towards 35 years. That in itself is not a reason to oppose the Bill. There are reasons to think that a move upwards in years is plausible, given the rise in the state pension age, but I do not think that to ask for such a review is destructive or against the spirit of constructive engagement with the Bill.
It is a pleasure to serve under your chairmanship, Mrs Main.
We need to recall that the initial reason, in 2010, for moving to 30 years was the understanding that groups of people—men and women—found it difficult to create a full contribution record. Despite the fact that various types of credits had been available for a number of years, there were still people who were not applying for them—perhaps because they were not aware of them or not in a position at the time to obtain them—and were therefore arriving at state pension age without having built up a full entitlement.
That becomes even more important when we get to the point that I think, in principle, is the right one: that we expect individuals to build up their own pension contributions. In the original scheme of things, the fall-back position, particularly for women with a much interrupted and perhaps limited working life, was that they relied on their husbands’ contributions, and therefore that it did not matter so much. We have been in a hybrid stage for some years, with many women building up pensions in their own right greater than anything they could have got through their partners’ contributions, but with some still not doing that.
Our new clause tries to dig down on the number of years. Knowing about the changes to the contribution conditions—for example, that a woman no longer needed to have contributions or credits for 39 years, and that this period had been reduced to 30 years—some people, if they were a little older at the time, reasonably assumed that for them the figure would be 30 years. A constituent who has been in touch with me is an example of someone in that position. Having worked all her life, she stopped work in her early 50s because of ill health, by which point she had not worked for the required 39 years. Shortly afterwards, the contribution system was changed, and she understood the new requirement to be 30 years, which she had achieved. She retired early from her job because of her health, and was allowed to take a reduced pension at an early age on medical grounds, as people are often allowed to do. She will reach pension age post-2016, and she is concerned that it will be extremely difficult, if not impossible, for her to make up 35 years.
My constituent is aware of the suggestion that it might be possible to buy extra years. At the moment, however, I understand that people are being advised not to do so until the situation is clearer, because it might be risky to buy additional years now in case things change. She is still waiting to hear about that. I think the Minister has said in similar situations that people should be able to get credits, but as I understand it—I may be misunderstanding the situation—I cannot see any way for my constituent to do so. She will not be going back to work, so she cannot work to make up the extra years. I think that she could get credits if she were to claim employment and support allowance and go through the entire assessment process, but she would not get any benefit because she has the early retirement pension.
The hon. Lady is obviously very knowledgeable about these matters, but I am baffled by the assumption that her constituent needs somehow to make something up. In 2016, we will work out what she has built up so far under the current rules, compare it with what she would get under the new rules and give her whichever of those two numbers is the higher. Why does the hon. Lady assume that her constituent will have to make anything up? Why does she not just do nothing and get what she was going to get?
People in such situations feel they will not achieve the full pension they might have achieved under the new system, because it will be difficult to find the extra years. When my constituent inquired, she was told that she could buy extra years, which would suggest that the DWP considers it appropriate for people to buy extra years in order to reach 35. Some people in that situation might have made other arrangements if they had known that things would change again. Is the Minister confident that nobody will be disadvantaged? It is still not clear why he thinks it unnecessary to do a bit more work and dig into this.
As a result of their circumstances, some people may end up without a full contribution record. I hope the Minister will look at the situation of those who have worked in very low-earning jobs. I have constituents who work in two or more short-hour jobs that are under the level at which contributions are made, and they find that they are not building up a contribution record towards a state pension even though they are, in some cases, working a fair number of hours in a week. If their different employments were combined, they would qualify for the required number of years, but they may be missing years out because they are in short-term and variable employment.
Is there not an issue of expectations here? The Minister referred to the foundation amount, but is the problem not one of communication at the introduction of the White Paper? Does my hon. Friend agree that when the Government announced the proposals, the impression was given—no doubt inadvertently—that the new flat-rate state pension was a winner for everyone and that everyone would get £144, which was so much better than the basic state pension? Is it not natural for people to assume that everyone else is getting £144 while they are not? In such a situation, the problem is expectations and relative feelings of loss.
There are certainly issues about expectations, but there is also an issue for people, such as the lady I have described, who will have 30 years of contributions and who would, therefore, have been entitled to receive the full amount if the system had not changed. My constituent has been given to understand that better arrangements are available for many people, and she would like the opportunity to make up the extra years. Now that ill health prevents her from working, and given that there are, in any case, only a limited number of years ahead of her, she is not clear how she can do so. She wants to be able to share in what the Government describe as a much better pension arrangement.
If arrangements were introduced to help the transitional group of people who start off with a worse pension than they might otherwise be able to obtain, it would stand them in good stead for the rest of their retirement. We are back to the position where we are effectively saying to people, “Many other people in your cohort will be entitled to a higher level of non-means-tested basic pension, but because of the position you find yourself in, you won’t.”
Returning to the question of people in short-hours employment, I hope the Minister will say that he is willing to look at a way of helping those with low earnings who do a number of different jobs. The number of people who do not pay national insurance contributions because their earnings are too low is already worryingly high, and it may increase if the pattern of work and jobs keeps changing. I met a gentleman recently who worked part time for a supermarket, which was offering him just enough hours to keep his earnings below the level at which he and his employer would pay national insurance contributions. For reasons unrelated to our debate, he inquired about working extra hours but the employer said they were not available and the business would not sustain it.
There is an advantage to an employer if they do not have to pay national insurance contributions in respect of an employee. Someone may be in that position for many years, and they may end up without credits. They may receive credits if they are also a carer or if they receive certain benefits, but some people will not fall into those categories. Given that people may have periods in their lives when they work full time or nearer to full time, they may have no problem in reaching the 35-year contribution threshold for a full state pension. However, it is not unreasonable that we look at this matter carefully to make sure that no groups are disadvantaged as a result of the changes being made, and I hope the Minister is prepared to do that. In particular, I am interested to hear his views on that group of people who may be outwith the pension system because of the work they do.
The Prime Minister and the Deputy Prime Minister—my remarks are certainly not a criticism of the Pensions Minister—often say that the new system will benefit women who have not done well out of the pension system historically. That has driven expectations of everyone benefiting and, more importantly, everyone getting the new flat-rate state pension. Does my hon. Friend agree that it would be helpful if the Government dug down and provided some clarity on what is happening for those people who will not have the time to make up their contributions?
However good a Minister thinks a piece of legislation is, and however unlikely they think it is that there will be any losers, it is important that we be absolutely satisfied that that is so. Similarly, we should be certain that nothing can be done—only a minor adjustment might be needed—to make up the extra years we are debating.
The pattern of work in our economy has changed substantially for a number of reasons, with people working variable or low hours, and I am not sure that it will necessarily change back. The pattern is much more spasmodic than it once was: the average shop worker used to work a five and a half day week—shops used to close on a Wednesday afternoon—which was a full-time job. We now have a society in which we want, expect, offer or are taken in by—however we want to put it—the 24/7 culture. We want to be able to shop at our local supermarket on Sundays or on our way home at 11 o’clock at night. The corollary of that has been that many employers, who are open all that time, want to adjust their staffing around their busy times. That is one reason why people are often offered quite short-term contracts.
It is very common for people—in shop work in particular, but in lots of other jobs as well—to be on contracts with quite short hours. The Government themselves have said they can see the advantage of that for individuals, as it enables people who have not been in employment to take the first step on the road back to work. To be able to do a job initially for only a few hours at a time gives them work experience, confidence and the ability to prove themselves to an employer, and then work up from there. Nobody is suggesting that the eight-hour job or the six-hour job is the be-all and end-all, but it may give people an opportunity to build up experience.
Some people in that position will be able to get credits, as under universal credit they will be able to get credits if they are also in receipt of benefit. However, if, for example, someone has a partner and so their income is too high to qualify, they may not get credits—unless the Minister can reassure me that they would be able to. Those people could end up doing several years of work of that kind without building up years towards their pensions.
My hon. Friend is a member of the Work and Pensions Committee. During pre-legislative scrutiny of the Bill, did the Government offer any evidence about the situation of those people who were expecting to need 30 years and cannot get to 35 years? Were any figures produced on potential losses, emotional or otherwise?
I am racking my brains to recall whether that was the case. Concerns were pointed out to us that there would be people in that position. I believe the Minister’s view is that, as they would not be any worse off than under the current system, that is not really a problem. Yet, in their age group and in their cohort, they will be among those who effectively do not benefit from the reforms. As post-2016 retirees, they would be fully within the new system, and this group is definitely post 2016, but they will not get the full benefit because they will have made arrangements in their lives on the basis that they understood they had already qualified for a full pension. Had they known that, they might have made different arrangements, had they been able to; they certainly would have had more time to do that.
We are back in the business of transition, which is always a difficult issue. Will the Minister comment on the issue of people with low earnings with multiple jobs who are therefore over the earnings limit, but who cannot have those earnings added together? Part of the concern has been how to divvy that up between employers—which employer pays what element of the national insurance contribution? When Baroness Hollis gave evidence to the Committee, she suggested that those people could be treated in some sense as self-employed but still build up credits.
Although the numbers in that group may not be large, I suspect they will grow rather than diminish because of changes in work patterns. We do not want to disadvantage people in that position. Traditionally, the view was that if a person’s earnings were sufficiently low to be below the threshold, in a sense they were being done a favour because they did not have to pay contributions. However, there is a downside to that: they are not building up the record that comes from those contributions, which will have a long-lasting effect, right into retirement.
Transitional arrangements generally, and potentially these transitional arrangements in particular, bring into view the ending of the state second pension. There will be low earners who are saving into the state second pension, which is redistributive in its impact, who were banking on continuing to pay into that after 2016 so as to get its significant accrual rate. We know that S2P is distributive: those who earn between £5,000 and £14,500 a year accrue state pension as if they are earning £14,500. But that will disappear, which is a significant issue. Does my hon. Friend agree with that?
I thank my hon. Friend for that reminder. Indeed, the previous Government introduced very real pension reforms. It was not, as implied in an earlier contribution, that they did nothing about various pension problems. They concentrated a lot of effort on low earners who traditionally had not had good pension cover through their employment and required a boost to add to their basic state pension.
When the Work and Pensions Committee looked at the issue of people who might fall under the lower earnings limit for contributions and be unable to get credits, the suggested figure for such people was 20,000. It is an estimate, and I doubt whether anybody knows the precise figure because it is presumably quite difficult to know when people are doing that kind of low-hour work. They are clearly, by definition, not paying contributions so they are not on the records. Obviously, if they have young children up to the age of 12, they will be able to get credits under the system, as will carers. As I understand it, if a couple are both in receipt of universal credit—or, to be more precise, the household is—credits can be given to both partners, which is a change from the previous situation. That is an improvement, but there could still be people who fall outside all those arrangements. If they are working and earning and therefore, in a sense, contributing—and in some cases through more than one job—they may actually have a reasonable income. We should find a way of including them within this scheme so that, come their retirement, they can actually get a pension and are not left with a low income which will impact on them for many years. Otherwise, they will be left among those groups who could still be dependent on means-tested additions to any pension they have been able to build up, for many years into the future. I am interested to hear the Minister’s comments on these issues.
I will address my remarks to new clause 2 in particular, as clause 4 appears to have been largely accepted. To clarify, we are moving from a situation where someone needs 30 years for a £110 pension, having accrued an earnings-related pension on top, to needing 35 years for a £144 pension. People talk about a full state pension as though we have moved the goalposts, but that is simply not the case. What a full state pension is has, in itself, changed, so it is not comparing like with like to use the same words, because they mean something different in the new regime.
I absolutely take the Minister’s point, but I am sure he is aware that to the average person in the street, a state pension is a state pension. He is right: there is an issue regarding the abstract and the reality of what the average man or woman in the street understands by “the state pension”. It is the sense of relative unfairness that is a thorny issue.
If all of us who communicate these matters say, “You used to need 30 years for £110 plus something else, and now you need 35 years for £144”, there would be no confusion. There are those—perhaps not in this room—who have found it convenient to imply that we are now asking for 35 years for something we used to ask 30 years for, and that is not the case.
New clause 2 is another one of the Opposition’s reviews. I think the hon. Gentleman became a teensy bit defensive about his right to probe. Of course he has the right to probe and to ask questions; that is what he is paid for. All that we were ever so gently saying was that, as well probing, the Opposition give the impression outside this place that they have something firmer in the way of views—but mysteriously they disappear inside this place. It is that inconsistency that I was gently chiding him over.
I had hoped I was reflective rather than defensive. I will have to work on my posture and tone if the Minister sees that as defensive. I was going for reflective, but clearly I did not succeed.
I inferred defensiveness rather than reflectiveness, but perhaps that was a mistake.
The hon. Gentleman accused us of being generous. He said that people who have been contracted out can now build up to £144 and that we have been generous to them, and perhaps we have. Of course, one group we are thereby being generous to is precisely the one the Opposition highlighted this morning, who were mis-sold personal pensions. What went wrong for some of those people is that they were in contracted-out personal pensions that will not perform, so they will not build up through SERPS—because they are not in it—the sort of pension they might have wanted. We are now giving them the chance to do post-2016 years and fill some of that gap. Again, we may be addressing an historical wrong, among the many good things this legislation does.
The new clause suggests that the review be conducted within six months—that is not our phrase—of Royal Assent, so we would be back to a review finishing in autumn 2014. I was asked whether Government computers are all high-tech and shiny, and of course they are, but some preparation is required to bring in a new pension system for the entire prospective retired population. If we wait until autumn 2014 for the outcome of the review—presumably the point of a review is that we might act on it, which will take further time—it is simply inconceivable that we would be ready to go in April 2016 and that we would have time to communicate to people what will happen, because we would have been changing the plans even after Royal Assent.
Not all the points the Minister has made are unfair. We are not making an observation about how long a review would take; we are simply suggesting that the review would come back to Parliament within six months, and I hope it would be speedier than that. On computers, it was the Minister who asked my hon. Friend the Member for Edinburgh East—I assume it was a rhetorical question—whether she had experienced Government computer systems from the inside, the implication being, I assume, that they do not always work perfectly. That was really my point; by the Minister’s own reckoning, Government computer systems have a tendency not always to work swimmingly.
I would draw an analogy with a vintage car. Someone who understands it and has time to get it going can probably make it do something beautiful, but it can take a while. There is a lead time.
If I heard the shadow Minister correctly, this morning, his requirement of Government computers was that they should be tip-top and high-tech. Perhaps the Minister would like to comment on the extent to which he thinks his own computer meets those requirements.
Does the Minister think there is a danger that the new clause is not designed so much to meet with the Committee’s approval—nor, indeed, does it really meet any particular aim of the Opposition to oppose the Government’s change from 30 to 35 years of contributions for a full pension fund—but perhaps merely gives the impression that that was what they would have preferred to do, even if there was not the money to do it or the will to take it forward?
I was asked how much will be saved by changing from 30 to 35 years. The £1 billion figure that I gave to the Work and Pensions Committee, which was accurate at the time, was a 2030 estimate based on the 2017 start date. I can update the Committee with an estimate for 2030 of £0.7 billion, based on a 2016 start date. But in steady state—well, in 2060—it would cost £2.9 billion to go back to 30 years. Those are substantial sums, but they take time to build up, which is my crucial point.
I am sorry that I was not here for the start of the Committee, and if this point has been addressed already, I apologise. This morning, we heard only about winners from the change, so how are the Government making this saving?
As I was about to say, as we come up to 2016 we do what is known as the “better of” calculation: what someone gets under the old rules and what they get under the new rules, and they get the higher of those two amounts, so they do not lose through the 35-years provision in 2016. Thereafter, each year buys them one-35th of £144, which is more than one-30th of £110. Someone who, in 2030, has done a lot of their years post-single tier will have been building up in a system where they require 35ths to get to the full amount, compared with a single-tier system where they need 30ths.
The £700 million is the difference between single tier with 30 years and single tier with 35 years; it is not the difference between our new system and the old system rolled forward. Of course, dividing everything through by 35 saves money compared with dividing through by 30, because it must do, but that is not the same as saying that people are losing out, because everything they have built to date is honoured. I hope that that is clear.
I have been passed a note that says “confidence in it”, but that must mean in IT. I am very confident in our IT—
That is right. Obviously, as the House expects, we think that the HMRC systems that we rely on to support the calculation of single tier will be ready at least six months ahead of the April 2016 implementation date. We have worked with HMRC on pensions reform in the past, and we are confident that we can deliver on time. Clearly, the more lead time we have, and the more certainty in legislation and regulation, the easier it is to do such things. If there is any chance that any of the rules might change, there is a chance of a waste of money—if we assume that they will not change—and a loss of lead time. We can deliver this, although it will be tight, but any further delay would jeopardise the April 2016 start date.
I take the Minister’s point, which is not an unfair observation. May I push him on a little? He described making the transitional calculations as a bit messy. What is his expectation of how the calculation will proceed? How many people will have to be lettered? By when do the Government hope to letter everyone?
When I say a bit messy, I suppose I meant that trying to turn a description of the calculations into the English language is messy. It is the sort of sum that we do anyway. We are working out the 2016 accrued rights to date, which is what the computer does, because had we not changed the system that is what someone would get; then we work out the new figure, which is 35ths of £144, less the rebate-derived amount. We wrote to the Committee after this morning’s sitting with one we prepared earlier, which is a simplified note on the rebate-derived amount, which I hope that Committee members will rush out to read. Explaining the pensions jargon is complicated, but the maths is not complicated, so it is not difficult to programme such things.
On how many people, we will not be writing to anyone. The reform affects those who reach state pension age from 2016, which is clearly pretty much everyone who has not already retired. We will not be writing to about 40 million people to say, “Guess what, you have a foundation amount of threepence ha’penny in 2016.” We will be working hard on online information, statements and a whole communications strategy. People can already get a broad indication of the sort of pension that they will get; over time, we will be beefing that up. We will not be writing tens of millions of individual letters, but, as people get nearer pension age, they will find it increasingly easy to get from us what they need to know, and it will be a lot simpler.
I will move on to the issue of the people between 30 and 35 years and that of someone who has planned on the basis of 30 years, but now it is 35. The focal point in new clause 2 is people who have had something change late in their working life. I stress: if the old system gives them more than the new system does, they get what the old system would have given them—almost without exception. As long as they have the 10 years, they get the higher of the two numbers.
We have, however, given them an extra possibility, which they did not have under the current system. Now, all that people who have done their 30 years and stopped can get is the £110; they cannot pay extra NI and boost that amount, because they are full up. Under the new system, they may get 35 years; they may buy voluntary contributions—if they have the cash, I accept that point—and build another qualifying year, up to 35. Therefore, the potential state pension for the women we are talking about—it is principally women—is boosted; they have a new possibility. The rate of the voluntary national insurance, as we mentioned this morning, is fandabbydozy—to quote the hon. Member for Edinburgh East—in the sense that it is exceptionally generous.
I am advised by my learned friends that fandabbydozy is an expression of admiration or enthusiasm, popularised by the Krankies, who were—I quote—“a Scottish comedy duo”.
I am grateful to the hon. Gentleman for letting me know how he spends his spare time.
This is a new possibility for people: they can buy extra years, although obviously they need to have the cash.
The situation will be the same as it is with the current system. Currently, the basic pension is payable in full for 30 years of contributions, but people have a legal liability to pay NI for as long as they are earning above the floor and are below pension age. Therefore, under the current system, the 31st, 32nd or 33rd year does not add to the basic state pension, but people still have to pay NI. They accrue additional state pension under the current system. We are merging that into a single system in which people build up their pension for 35 years; however, it remains the case that there comes a point beyond which people will reach the maximum but will still pay NI, because national insurance is a system of pooling: beyond a certain point people are simply contributing to the wider pot rather than to their own pension rights.
The Minister has given an accurate answer to the hon. Member for Plymouth, Sutton and Devonport, but one thing has struck me. Does he think it would be fair to describe the new system—the rolling together of the second state pension and the basic state pension to create the flat-rate pension—as capped? Someone cannot get more than £144, so it is a capped state pension.
I noticed last week that the hon. Gentleman was desperately trying to get the witnesses to use the word “capped”, and none of them was prepared to do so, so there is a precedent there. It is a flat-rate pension. I am not sure why he wants to describe it differently, but it is a flat-rate pension—it is what it says on the tin. People can build up contributions beyond the 30 years through voluntary contributions should they wish.
The suggestion in new clause 2 is
“phasing the transition to a 35-year full pension requirement via an interim requirement of 30 years.”
If that means what it appears to, presumably we would keep the 30-year requirement going for a number of years after 2016, and then switch it off. The phrase “cliff edge” screams out at me when I read the new clause. Presumably, either the requirement for contributions would be 30 years, 30 years, 30 years and then 35 years, at which point some other Committee in some other part of this building would have exactly the same conversation as we are having now because of that sudden cliff edge; or, worse still, the requirement would be 30 years, 31 years, 32 years, 33 years and so on, and we would then face transition, phasing, “better of” calculations, accruals and off-sets. Sometimes, Governments just have to take decisions. We think this is a clean decision, with transitional protection for the people who have already built up more contributions. That seems the fair way to go.
I ought to respond briefly to the hon. Member for Edinburgh East on her point about people who do not build up the required 35 years of contributions because they have multiple jobs below the lower earnings limit; the link is tenuous, but we are in Committee. This week, we have published an updated estimate of the number of people in that position. We think it is of the order of 50,000 people. That is slightly more than we thought before, partly because we have updated our estimates of various other changes; one in five of those might be on credits because of claiming universal credit, but that is the sort of number we are talking about.
The crucial point here is that those people are paying no national insurance. If we invented a system in which people with multiple jobs had them added together, so that they would have to pay national insurance, many of them would not thank us for that, particularly if they had already made 35 years of contributions. Let us imagine someone in their early 50s, who has already built up their 35 years of contributions. Suddenly Steve Webb comes along, adds together all the little jobs on which they are paying no NI and takes some NI off that person. They will ask, “How much will that boost my pension?” The answer will be zilch, because they have already paid their 35 years of contributions. That would not be popular.
For a lot of those people, not paying NI is the better option, particularly if the phenomenon is temporary. If they spent their entire life with that working pattern, it would be a different issue; however, we should bear in mind that people can get a full pension for 35 years of contributions out of a 50-year working life, so even 15 years of doing multiple small jobs and never getting above the NI threshold would not be a problem. People would not thank me for putting NI on those jobs. Requiring those people to pay NI would not be popular and could be counterproductive for many of them.
I am puzzled by that argument. In response to the hon. Member for Plymouth, Sutton and Devonport, the Minister made the point that even after someone hits the 35-year requirement they will still contribute to the system because it is pooled, but will get zilch back out. Is he not making massively contradictory arguments? The argument he offers against people pooling multiple jobs to make NI contributions is that those people will get zilch. Does not the same apply to the previous point he made in answer to the hon. Member for Plymouth, Sutton and Devonport?
No. What I am saying is this: the hon. Gentleman and other Opposition Members are, quite properly, representing and trying to do right by those constituents of theirs who have multiple part-time jobs below the floor. Let us imagine that, in response to the Opposition’s representations, I said that we would change the rules so that, instead of treating each wage as separate, we will add them together to get those people above the floor and then require that they pay national insurance. His constituents, in that situation, would lose, because they would have to start paying national insurance they do not currently pay, and in many cases might not build up any extra state pension. That is clearly good for the Exchequer and for the pooled nature of national insurance, but it will not be good for his constituents.
My problem with the way the Minister is attempting to address many of the issues is that rather than focusing on improvement, he is keen to find a group for whom things would be worse, and to say that therefore we should not bother about the people for whom things might be better.
My understanding is that that the national insurance issue is not a new one, and that various Ministers and Governments have considered it in the past. They have not necessarily found a solution—I accept that; but to say, “Some people might already be over the 35 years, so we would not be doing them any favours,” is not to deal with those for whom the measure would be of great assistance.
With a blanket solution—and I think the hon. Lady may have mooted the idea of combining things—we would need to beware of unintended consequences. We would help a small number but possibly act to the detriment of a larger number. That seems to me a legitimate point.
A more tailored solution is to work out whether there are other reasons for the situation. Someone who has, say, two part-time jobs, both of which are under the floor, might be doing that because of caring responsibilities for children or an elderly relative. We would need to make sure that that person was properly credited in. In a sense, for that person, the ideal solution would not be to be made to pay national insurance; it would be for us to examine the reasons why they could not work more hours, and ensure that if it was legitimate they would be credited in. That is what we will do. Through universal credit we will bring 800,000 people into crediting for national insurance, because even the partners of people on universal credit get national insurance credits.
We think the hon. Lady is talking about a relatively small number of people, many of whom might not be suffering in any case, for whom the solution might be worse than the cure, and for whom we have other options open, including voluntary national insurance. If people have multiple part-time jobs that take them well above the lower earnings limit, they will have a wage out of which they can at any time pay voluntary national insurance. That would solve the problem as well.
My judgment is that the relevant group is a small one, and that many of its members may not be losing. We are helping that group of people through other policy measures and there are options available to them. I have not heard what else we might usefully do, and I am not convinced that there is a significant problem.
As with the previous proposal for a review, under new clause 1, a review under new clause 2 would lead to further delay in implementation. It would address a perceived problem rather than a real one for those close to pension age, because they would be protected in any case. On the strength of those facts, I ask the Committee to reject new clause 2.