Clause 7 - Survivor’s pension based on inheritance of additional old state pension

Pensions Bill – in a Public Bill Committee at 3:15 pm on 2nd July 2013.

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

Photo of Anne Main Anne Main Conservative, St Albans

With this it will be convenient to discuss new clause 3—Review on gradual transition from certain benefit arrangements based on age—

‘(1) In relation to women without a national insurance contribution record who relied on a husband’s national insurance contributions and would under existing arrangements have accrued a benefit based on such spousal contributions, the Government shall conduct a review to determine the costs and benefits of permitting women within 15 years of state pension age as at 6 April 2016 to retain their accrued rights. Such a review shall be conducted within six months of Royal Assent of this Act and a report thereof laid before Parliament.

(2) The review shall also consider whether similar provision should be made in relation to sections 9 and 10 of this Act.’.

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

This is another example of the Opposition asking for a review and, again, I will give the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East the chance to make the case for that before I explain why we do not think that one is necessary.

Clause 7 is about the pension that a person gets from their spouse or civil partner when they die. There are two broad categories of circumstance. One is where the person who dies was a single-tier pensioner—that is, they reached state pension age after 2016—and the other is where they were a pre-single-tier pensioner. Essentially, if someone’s late spouse was a pre-single tier pensioner, they will inherit a share of their SERPS pension, up to a cap—there is a cap in the current system. It will operate basically as under the current rules. For example, if the person who dies first retires under the current rules, we are not saying that just because their spouse is a single-tier pensioner, suddenly all the inheritance that they thought they were going to get goes out the window. Essentially, that would carry on.

Conversely, if the person who has died is a single-tier pensioner, we propose that half the protected payment is inheritable. That is quite straightforward. The person who dies takes their single-tier pension with them, as it were, but half of the balance is inheritable by the spouse. That seems to be a way of honouring what has gone on in the past, particularly for those who have retired pre-single tier and expect to be able to pass on half of their SERPS, or whatever it is, according to their age.

The new system has a much cleaner transitional set of rules for inheritance. In the long term, there is no inheritance; when the system is fully up and running,  people will earn pensions in their own right, not because of who they were or were not married to. However, we clearly have a transitional period to cover, quite properly. Clause 7 sets out the basis on which that should be done.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

We recognise the Government view on striving to create a more equal society for men and women and more widely in terms of non-married couples and civil partnerships. Different approaches need to be reflected in the Bill and in clause 7, and a modern approach is needed.

New clause 3 speaks for itself. However, I would like to set out the Opposition’s view in a little more detail. As the Minister set out a moment ago, the single-tier pension will be an individual entitlement with no special rules for people who are married, bereaved or divorced. That is the Government’s ambition, and there is much to be said for that approach.

Currently, people who are or have been married or are in a civil partnership may be able to use their partner’s record to receive a state pension or to increase the amount that they receive on their own record. The Opposition welcome the fact that there will be transitional protection in some situations, to protect inheritance of the additional state pension—S2P—and for women who paid reduced-rate national insurance contributions. It is still the case, however, and the Select Committee certainly had something to say about this in its pre-legislative scrutiny, that some people—mainly women—who have been relying on their partners’ larger pension records and quite reasonably expect to receive the married women’s pension in the next few years, or a full basic pension if widowed, will not have the time to make up the contribution years before they reach retirement age. The issue of cliff edges has been mentioned several times during our scrutiny of the Bill, and that is another cliff edge.

The Opposition believe that, in line with the Work and Pensions Committee’s recommendation, it should be possible to find a solution for the small group of women in that situation, those who did not build up their own national insurance records because they had a legitimate expectation that they could rely on their husbands’ contributions to give them entitlement to the basic state pension. The Minister referred to the fact that under the current system there was a cap on the amount that such persons could inherit.

We want the Government to explore what can be done to make the situation as fair as possible for that group. One option, which the Select Committee endorsed, is that women who rely on their partners’ NI record with the reasonable expectation that they will receive a married women’s pension, or a full basic pension if widowed, and do not have the time to make up the contributions, are given a protection in transition such that those who are within 15 years of state pension age are able to retain their rights.

Photo of Andrew Griffiths Andrew Griffiths Conservative, Burton 3:30 pm, 2nd July 2013

A 10-year period to allow people to make alternative arrangements seems to have reached general consensus across the House—and there was talk of a seven-year period. Will the hon. Gentleman explain why in this instance he has chosen 15 years rather than 10?

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

There are a couple of issues. The first is that that was the time period that the Work and Pensions Committee suggested, on a cross-party basis. Without wishing to cover ground that I think my hon. Friend the Member for Edinburgh East will cover, I will say that there is a case that people in that position—women in particular—are less likely than other groups to be able to make up the difference, and that is why 15 years has been suggested. My hon. Friend the Member for Edinburgh East might want to elaborate, but that is my understanding.

During its pre-legislative scrutiny, the Work and Pensions Committee also suggested that the Government assess and publish the cost of providing that option for the relatively small number of women affected. I guess we have to use our imagination a little, but I do not think that too much is required to put ourselves in the shoes of that small group of women. As those women, we have lived our lives expecting that, while we do not necessarily have our own national insurance contributions, our husbands’ will ensure that we get something reasonable in retirement. If we were some of those women, we would feel a real sense of anxiety about the shift.

We recognise that, in the broadest sense, changing the system to one based on an individual’s contributions reflects changes in society—of course we do. That is entirely right. The Government have not published figures on the cost of providing the protection to the women, as suggested by the Select Committee, and we ask them to probe further for this, I think, relatively small group. We do not know its precise size, but it is a relatively small group of people, for whom anxiety about the potential loss is significant.

Photo of Andrew Griffiths Andrew Griffiths Conservative, Burton

The hon. Gentleman makes the point about our still not knowing the cost of providing the protection for the small group of women whom he talks about. If he agrees with the principle that the proposal should be cost-neutral, however, how would he pay for any additional costs?

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

We are asking the Government, as the hon. Gentleman is aware from the new clause, to dig down and to say how many women, or people, will lose out and by how much, and then what it will cost. I refer him to our discussion in Committee about cost-neutrality, which he may remember. The Bill is cost-neutral, in so far as the new system does not cost any more than the existing system. As the hon. Gentleman is aware, however, there is the issue of the increased national insurance contributions, which are going to the Treasury. It is a still a little unclear, to put it mildly, what is happening to that £5.5 billion. He cannot expect the Opposition to be able to go into the matter in more detail until we have the numbers and the people involved, which is what I am asking the Government for. If the Government are prepared to provide those figures, and if they accept our proposal for a review, we will be in a position to come to a judgment.

We accept that the provision for derived entitlement dates back to the 1940s. The world has changed, of course. Men worked and women stayed at home, more or less, but society has changed, so that is no longer our social structure. We recognise that the Minister and the Government are trying to reshape the pensions system to reflect more accurately the shifts in employment  patterns, as well as the issue of caring contributions, which the Labour Government put in place and which this Government are continuing.

What is a reasonable expectation for that particular group, usually women, for whom the opportunity to make up contributions is probably more difficult than for other groups? That is why the Select Committee suggested 15 years rather than 10. The Opposition view is that by 2020 fewer than 30,000 women in this country will receive a notionally worse state pension outcome because of the removal of derived entitlement and that the pension credit guarantee will remain in place as a safety net for those living in this country. Our estimate is that fewer than 30,000 women will be affected; the issue is how much it affects them, and whether they are in a vulnerable position relative to other parts of society.

We also accept the Government view that the measure is required, but we argue that the transitional period is necessary to stop those women in particular from falling through the cracks. I go back to the point that the state pension reform is a pretty radical shift. We know that it is being made on a cost-neutral basis, therefore there must be significant cliff edges in the system. Our sense is that this is one of them. In the spirit of co-operation and consensus in this part of the Bill, I am asking the Minister whether he is prepared to dig down further, because the Select Committee elaborated on the issue in some detail.

Transitional provision should ensure protection for everyone, based on their legitimate expectations. The key is, what is a legitimate expectation? The issue of a married person’s pension has some resonance for those depending on it.

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

I appreciate that following the logic of the Bill is not always straightforward, but clause 7 includes in its heading “Survivor’s pension”, so it relates only to widows; it is not to do with the married person’s pension, when both partners are still alive.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

I thank the Minister for that clarification. Instead of saying fewer than 30,000 women, I should have said fewer than 30,000 widows—that is helpful of the Minister. We are asking the Government whether widows are particularly vulnerable. Are they able to make up the difference in what they would lose? Is there a case for some significant transitional protection for that group? That is the basis of our thinking when asking the Government to review the provision.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

The Select Committee looked at this matter. The Government have already recognised that there are some residual groups who, for various reasons and in various circumstances, ended up relying on what many of us would now consider an old-fashioned way to make provision for the future.

One group for whom the Government have made provision includes those women who even now, to my surprise, are still paying the reduced contribution rate. They never made the change when the arrangement was done away with for future purposes some years ago. That was based on the notion that women did not work much and, if they did, they were earning only pin money and it would be grossly unfair for them to pay national insurance contributions that would not add up to much. After all, they could expect to receive a 60% pension based on their husband’s contributions.

The Government have moved in that particular area, and a clause in the Bill applies to that small group. One might imagine that such women are very rare. However, I have a constituent in that position and was very surprised, knowing her circumstances, that she had made that choice. She did an amount of small-scale work—another of those people who do the world’s work—and she had decided not to make the change. When she first read about the proposals she was concerned, but then pleased to see that her circumstances are covered, since that small group will be allowed to carry forward their arrangements.

As for survivors, they are not just women who are widows. The provisions under the existing system for people to inherit or gain derived rights have been extended from widows to widowers and also apply to people in civil partnerships.

Photo of Anne Main Anne Main Conservative, St Albans

Order. Will the hon. Lady please confine her remarks to the clause? She is straying somewhat wide of the review mentioned in the clause.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

I was trying to sketch in some of the background as to how we have arrived at this point. As these arrangements have changed for the majority of people so much, it is right that people should build up their own contributions. On that basis, they do not need to get survivorship benefits through a deceased spouse or civil partner, because they have their own pension provision. The debate is about the group who may not have made that provision because they thought they would get this in future if necessary.

The Select Committee’s point was that it would be important not to leave that group stranded. We asked the Government to look at the option of allowing those who would be within 15 years of state pension age to retain this right. The Select Committee’s recommendation was that the Government should assess and publish the cost of providing that option, on the assumption—and I think it is a shared assumption—that a relatively small number of women are affected.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions) 3:45 pm, 2nd July 2013

Was the Select Committee able to estimate the number affected by the shift to the new state pension?

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

Our understanding was that the number of people affected will not be large, although it is harder for a Select Committee to get that information than it is for the Government. It is reasonable to expect a Government Department to gather such information.

Photo of Andrew Griffiths Andrew Griffiths Conservative, Burton

I thought the hon. Lady’s colleague said earlier that a relatively small number of widows will be affected. Is she saying that she understood that a large group will be affected? Will she clarify that for us?

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

If I said that a large group will be affected, I did not intend to say that. I did not hear myself say that, although one does not always clearly hear what one says. The group is small because, for the most part, most women now have their own provision. They have sufficient pension in their own right. They have worked sufficiently and have paid their own contributions, so they are not reliant on the provision.

Nevertheless, in making such changes surely we do not want to disadvantage even small groups who have followed a particular path. The provision for inheriting and being able to receive a widow’s or widower’s pension in such situations is not of a recent date. The provision has been in the system for many years; it has certainly been in the system since after the second world war, and it may have been in the system before. From that point of view, the provision is such an understood and expected part of the system that it is perhaps not surprising that some people have continued to assume that they would be in a position to benefit from it.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

The hon. Member for Burton asked a fair question about how many widows will be affected by the provision. That perhaps speaks in support of the new clause, which would allow us to know precisely how many widows will be affected and to what extent. Does my hon. Friend the Member for Edinburgh East agree?

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

We need clear information. The group might be very small, and I suspect the group is diminishing rapidly. The fact that we have suggested that 15 years is a more reasonable transition period assumes that, by that stage, it is very unlikely that there will be people left in a position to be disadvantaged; there will certainly be a lot of information available to tell people that that is not the case. We are probably dealing with a group of women—predominantly, although the right of inheritance has been extended—who are likely to be older and nearer their own state pension age, and who are therefore not really in a position to overcome the possible disadvantage. However good the Minister believes the system to be and however much he is firmly of the belief that it is all better, as we proceed through the Bill and make the changes it is important that we do not disadvantage even quite small groups because doing so is easier, neater or tidier.

Photo of Michael McCann Michael McCann Labour, East Kilbride, Strathaven and Lesmahagow

Does this not expose the whole argument about cost neutrality? The Government have trumpeted at every step the £144 payment and the triple lock, which will, of course, last only until 2015. They have not mentioned all the snips, cuts and other bits of tailoring that have been done in the Bill to pay for its cost neutrality.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

The question of cost neutrality is an interesting one. We have been told that in the long term the new system might be cheaper, which is why some people are wondering who the losers will be. The losers in this situation are created by the transition from a system that, rightly or wrongly, allowed people to rely on contributions made by others, in some cases somebody moving towards retirement, although that is not the issue that we are dealing with here. Some people still feel that the fact that the two systems run together is difficult.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

No one is claiming that the previous system was perfect, and we must ensure that the pension system reflects changes in society. As things stand, however, the people who tend to struggle most in retirement are widows. There is a cohort of older widowed women, who are often in their 80s, whose income in retirement has suffered. Does my hon. Friend agree that there is a particular thorny issue around that cohort?

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

I said earlier that we have been grappling for many years with the fact that many women are poorer than men in retirement; it is not a particularly new issue. We do not want to perpetuate that situation. We hope that as women’s employment opportunities and earnings improve, and as they get closer to equality, many of those problems will disappear.

The specific issue with this group of widows is that, at the moment, anyone in that position who is on one side of the line can receive a widow’s pension on their partner’s contributions, but someone who retires after we have implemented the proposals—because we want to do away with such old-fashioned notions—would be disadvantaged. We accept that the numbers are small, and it might seem as though the problem does not really matter because the numbers are so small. However, as I believe Age UK pointed out to the Select Committee, when people have made plans based on a reasonable expectation of being able to use their husband’s contribution records, it is not fair to stop them from doing so abruptly. They do not have the opportunity to make up the difference. It would be wrong to leave them with a poor pension that condemns them to long-term low income and poverty during retirement when that might be overcome by a slight tweak to the rules.

Photo of Pamela Nash Pamela Nash Labour, Airdrie and Shotts

Is it true that the widows that we are talking about do not constitute a homogenous group? Many such women, and some men, will also be affected by the other changes in the Bill. I have been visited by constituents who have cared for sick relatives for years, as a result of which they have not built up the necessary contributions and they are depending on their husbands’ contributions. If that happens in future, this group of people will be particularly affected.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

Some of those who were caring should have been able to get credits, but despite the changes that were introduced in respect of carers, unfortunately some people appear not to have taken advantage of that provision. Perhaps they should have done so, but they have not. One reason why they may not have done so is that they thought that it would not make any difference to them or that they did not need to. They were not proceeding on the basis that they needed to make up the right to a pension from their own contributions, because they thought that the system as we have understood it would come into play.

Although some of those people—not necessarily all—would have been able to make up credits in their own right, we know and the DWP has agreed that the take-up of the ability to get credits has been less than the number of people known or thought to be caring, and has been disappointing. I suggest that one reason why it has been disappointing is the assumption that it was not necessary because of the level of cover that could be obtained under the arrangements that people understood were and would continue to be in place. People made their decisions and planned accordingly.

When the Government, for often good reasons, decided that it was time to make the change—for the most part, it is absolutely right that people should be able and encouraged to make their own arrangements, and to be seen as individuals working towards their own pension provision—those who worked on that other assumption are now feeling, and being, disadvantaged. They understood  the system that was operating, and they had been given no particular reason to suggest that it would not continue to operate. New clause 3 suggests an investigation into what the numbers are and how they could be accommodated, with a cut-off at the point where we think that that group will have been eliminated.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

The point that my hon. Friend has been developing strikes me as potentially significant for what I take to be her argument, which is that some of those in the group who could have benefited from the credits introduced by the previous Government to count caring towards national insurance contributions might not have done so because they took the view that they could rely on their spouse’s national insurance contributions to ensure them a reasonable pension. Is that her argument, and did that emerge in the Select Committee’s discussion of the issue?

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

It was not unreasonable, even if somewhat old-fashioned, for someone to think that that would be the case. If that was their expectation, some will find under the new single-tier pension for those who retire post-2016 that they have less than they expected. I think that the Minister said in evidence to the Select Committee that he thought only about 30,000 people will be affected.

One problem is that we are obviously estimating. The estimate that the Select Committee was given of the number of people under the lower earnings limit was, again, about 30,000, but the Minister has now suggested that he thinks that it is more likely to be about 50,000. We must take some of the estimates with a bit of caution. They may or may not be the end of the story.

Another issue that the Minister raised before the Select Committee was that he believed that a number of those women were not living in the UK, and that the reason why they may not have been able to make up their pension contribution was that they were overseas. That may or may not be the case. Again, without an investigation in more depth, I do not know whether we can be precise. Perhaps the Minister has done that investigation and can tell us about that.

This claim is bit of a red herring. The suggestion is that this measure is not necessary because these are people who lived overseas who are trying in some way to get a pension that they neither need, nor—the implication would be—deserve because they lived overseas. Indeed, it was suggested that some may never have lived in the UK. For them to be able to pick up a pension based on that position would be unfair.

It is not beyond the wit of legislation drafters to exclude such cases if they thought that that was the right thing to do, but I wonder whether the suggestion that this group is not in need in any sense has been thrown into the debate to steer us, and the public generally, away from considering making provision for them. That harks back to the debate on people getting various payments if they live overseas.

I do not think that, in any way, takes away from the fact that some do deserve these payments. Potentially, some of these women made the decisions that they made because they thought that they would be covered by their husbands’ national insurance contributions and, if required, they would get a widow’s pension  when needed. Post-2016, they could find themselves in a position where the single-tier pension that they are able to build up in their own right is simply not as good.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions) 4:00 pm, 2nd July 2013

Was the Select Committee able to crunch the numbers and get an idea of what kinds of losses we are talking about? In this clause in particular, there seems to be fuzziness on how much the loss might be for the losers. Did the Government offer information on the size of that loss?

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

The information offered by the Government was substantially the numbers, as given by the Minister, rather than in any more depth. In pre-legislative scrutiny, it is difficult for a Select Committee to undertake that work. However, it is significant that—I think that the Minister would agree—while the Select Committee’s thinking in the pre-legislative scrutiny report was, on the whole, supportive of part 1 of the Bill, which is the part that we scrutinised, this measure was one of the Committee’s unanimous recommendations. There were other issues that some strongly wanted us to raise but we did not because, on balance, that was not the view of the Committee.

On that basis—given that this was not a Select Committee report that found fault with everything; it was a measured report—the Committee was convinced that this group required a bit more investigation. We could not quantify that in terms of how much it might cost, but I suggest that it would be right for the Minister to investigate this matter further. He should want to have that review with a view to making provision for what will probably be a small group, but nevertheless a group that could be significantly disadvantaged. I am sure that he would not want that group to be disadvantaged through his changes.

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

I will address my remarks principally to new clause 3. There are a number of reasons why, if we were to implement new clause 3 and act on it, we would, I suspect, be up for judicial review. One is that it relates only to women. As the hon. Member for Edinburgh East said, these days widowers as well as widows have derived rights, so it would be quite improper to conduct a review solely to look at the position of women. Therefore, the new clause as it stands would be unacceptable.

There is a second problem. I fully accept that the 15 years threshold comes from the Work and Pensions Committee, and I place on the record my appreciation of the thorough job done by the hon. Lady and colleagues who took part in the pre-legislative scrutiny; we are grateful for that. However, 15 years is just another arbitrary number. I imagine that if we put in a provision that said we will run on the old rules for 15 years, we would be in another Committee room in another year with another set of Members saying, “But my constituent was 15 years and one day short of pension age and got nothing. This is a terrible cliff edge.” So either we move the line somewhere and create a new cliff edge, or, worse still, we have a tapered system, which would be a complete nightmare.

Photo of Michael McCann Michael McCann Labour, East Kilbride, Strathaven and Lesmahagow

Is that correct, given that the numbers are diminishing year on year? There therefore comes a point when we are talking not about thousands of individuals, but hundreds. All the parties would generously recognise that we would not draft legislation to cater for numbers that were in the hundreds. If they are in their  thousands—and particularly when we are talking about a vulnerable group—there is a stronger argument for changing the Bill. That is why the argument about 15 years is perhaps more potent than the Minister thinks.

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

It is not so much the generosity of future Parliaments that troubles me; it is the generosity of m’learned friends in the High Court. The point is that we would quickly find that if we put in place a law that someone—even one person—fell just the wrong side of, it would be struck down if it was deemed to be arbitrary. There is no justification for such a measure.

The shadow Minister was asked in an intervention, why 15 years? He perfectly honestly said, because that was what the Work and Pensions Committee came up with, and that the Opposition were, in a sense, probing. However, there is no objective basis for that. We cannot make law on the basis of entirely arbitrary numbers, although it might occasionally appear that we do.

So, the choice of 15 years is arbitrary. There is an issue about legitimate expectations, which is why the rather complex transitional procedures that we have put in place provide protection for the vast majority of people. I will reiterate the numbers we think we are talking about. We have the figures for men, which are obviously much smaller, but we think that by 2020, of all the women who become single-tier pensioners over that five-year period, roughly 5% will lose out—that is the 30,000 number—from the non-availability not just of a derived pension as a widow, but a derived pension as a married woman whose husband is still alive. All of that together is less than 5% of the people we are talking about.

Of course, we could roll on every feature of the old system into the new system for another 15 years. At the same time as we are being asked to do that, we are also being asked to give clear communications. We are trying to bring about a reform that enables people to plan for their retirement, to know where they stand, to know what they will get, and there is a trade-off here. We have put in a lot of transitional protection, but a crucial point occurred to me as I was listening to Opposition Members. A lot of the transitional protection is boiled down into the foundation number, so we do the transition—not all of it, but a lot of it—into that one number, which is then the basis for the new system. We do not keep going back and using the old system. It is boiled down and then we build on it, whereas the Opposition’s proposals literally keep the old rules going for a decade and a half—to 2031, I assume—so that in 2030 people would still have rules based on the 1948 model of basing a woman’s pension on her late husband’s.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

The Minister refers to the fact that the 30,000 number comes from the Government’s calculation that by 2020, 5% of the women who retire after 2016 will lose out, and that, of course, is not an enormous number. I take the Minister’s point about the foundation amount, but have the Government calculated how much the 30,000 might lose out by?

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

In many cases, the amounts they will lose out by will be very small. With the 30,000, we are talking about people who would have got £66 a week as married women on their husband’s record. To get that, I think—from memory—they need 16 or so years, because  16-35ths of 144 is £66. Given that we think 82% or 85% of women will get the full single tier with 35 years, the number who are short of that figure is very small, and even when they are, they are often only a bit short. In other words, the differences for most people are small and for the group covered by the clause—the widows—that is where the guarantee credit comes in. They will be the sole member of the household and will be entitled, unless they have huge savings, to a minimum income of £142 at last year’s prices. The widow’s pension that they would have got would be the basic pension—the £110, plus some inherited SERPS—whereas the guarantee credit guarantees them, now, £145 a week. That will make no difference to the income of some women who will not get the inherited rights that they thought they would, because we are saying that they will not be destitute and will not have nothing: they will have the £145, which is substantially more than the widow’s pension of £110.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

I thank the Minister for that explanation. Does he think there will be significant losers among this group? I noted his words carefully. He mentioned that, in many cases, the losses will be small. Will there be cases where the losses are significant?

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

It is possible to construct a case study in which, for example, someone who would have got an inherited widow’s pension will not get it, and who does not have a lot on their own basis. In those cases, people then get the guarantee credit, so they are brought up. Yes, they might miss out on the £110 widow’s pension, but if that would leave them with next to nothing, they will get £145.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

I hope I did not cut the Minister’s answer off mid-stride. I take his response to mean that there will be cases where the loss is quite significant, but in such cases pension credit makes up the difference. He knows that there is no greater supporter of what pension credit achieved than me—it was a significant Labour Government achievement for the poorest pensioners—but he also knows that the logic of the Bill is to simplify the system and take people out of means-testing. I should have thought that he would be as keen as possible for the losers in this group to be taken out of the means-tested system.

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

It is hard to advance an argument that says, “We run a complicated feature of the old system”—it is complicated; derived rights are fiendishly complicated—“for another 15 years, so that a rather small number of people do not have the complexity of means-testing”. That would be to use a heck of a lot of complexity to try to take a few people out of complexity. I do not buy that argument.

Some widows with good occupational or state pensions of their own, for example, will not get a derived pension and will lose the widow’s pension they would have got. The rhetoric—I do not mean that pejoratively—and speeches we have heard have all been about the vulnerable, marginal and dispossessed, but the only people who lose significant sums are those who have substantial other income, so they would not be in the scope of the guarantee credit. Again, it is easy to elide the two, but  the vulnerable, marginal and those who really need the cash will get the guarantee credit and will have an income essentially equivalent to the single-tier pension.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

I thank the Minister for that further elaboration. If I understand him correctly, he suggests that, although the Government often claim that the pension credits system is fiendishly complicated, this derived rights system is even more complicated. I take that point. Is there danger in this regard, though? We often hear about uptake in debates about pension credit, and it is pertinent to this discussion, Mrs Main. Although I am a great supporter of what pension credit achieved, there is no doubt that not all people claim what they are entitled to. Am I correct in saying that under a derived rights system, these widows in particular would be sure of getting what they are due, as opposed to under pension credit, where they have to claim it?

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions 4:15 pm, 2nd July 2013

That is a fair comment, but if a widow in this future scenario has £70 of pension and nothing else to live on, it is pretty clear that the first thing they will do is go to the council, or someone, and say, “What else can I get?” Take-up of the guarantee credit element of pension credit is high, particularly on an expenditure basis, so people with big entitlements are very likely to claim. In general, pension credit is not great, partly because of take-up, but widows on very low incomes who have nothing else to live on claim their guarantee credit.

People outside the UK were mentioned. The hon. Member for Edinburgh East suggested that this was a red herring and asked whether someone clever could just write a law to fix the problem. However, we get terrible flak when we no longer index the pension of people who leave the UK—an issue we will no doubt discuss later.

The hon. Lady suggested that when people move out of the country, they should just lose inherited rights, widow’s pensions and so on. I am already not the most popular figure with the International Consortium of British Pensioners, but it would add to my charge list if I listened to what she said. Indexation is clearly a different issue, but on derived rights, to say, “Just go and live somewhere else and, because you are not here any more, you cannot have a derived pension”, would be a far bigger step that she would struggle to justify.

I will touch briefly on the issue of cost-neutrality, which seems to keep coming up and is worth probing a little. It was mentioned by the hon. Member for East Kilbride, Strathaven and Lesmahagow, who, like one of his hon. Friends, said, “Ah, but there is all this national insurance money kicking around, so”—by implication—“why don’t we spend some of that?”

Of course, we know that the national insurance revenue from the measures in the Bill will pay for the Dilnot social care cap and for employers to take on extra people through reduced national insurance, while the balance will lie with a future Treasury that may—purely to give an example—want to reimburse all or part of the additional cost of the national health service and schools. The Opposition cannot have it both ways. I suspect they would like that rebate money refunded to schools and hospitals, but they have implied that they  also want it spent on better pensions. I believe they are no longer into spending the same money twice—or perhaps they are.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

We know that the Minister and Government Members are always keen to hear the Opposition elaborate on what we would or would not do, but it is rather unfair to throw national insurance contributions back at us. The Government are taking the £5.5 billion, but we have no clarity on what they wish to do with it. The Opposition are asking the Government to clarify what they intend to do with that national insurance windfall. Will the Minister tell us?

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

At the risk of testing your patience, Mrs Main, I have mentioned a couple of items that have been specifically identified—the national insurance reduction and the Dilnot social care cap—but because that will all come in 2016-17, for which there has been no spending review process, that will clearly be at the discretion of a future Chancellor, who will have to take such factors into account.

To return to new clause 3, the hon. Member for Edinburgh East said that the issue of people overseas was a red herring, but in the past decade the number of people claiming the married person’s entitlement has fallen in Great Britain by 17%, but risen overseas by 17%. In other words, a growing proportion of people with derived rights have a limited connection to this country, which does not seem to us to make that matter a financial priority for the Government.

New clause 3 recommends another review and would involve another delay in the implementation of the single-tier pension. It would create new cliff edges, bring in only women and not men, and greatly complicate the transition for a relatively small number of people for whom other provisions are in place—the guarantee credit, the opportunity to pay voluntary contributions and so on. On that basis, new clause 3 would not add to the Bill’s clarity but would complicate it to no good effect. I urge my colleagues to reject it when the moment comes to do so, but to agree to clause 7.

Question put and agreed to.

Clause 7 accordingly ordered to stand part of the Bill.