Schedule 3 - Survivor’s pension under section 7: inherited amount

Pensions Bill – in a Public Bill Committee at 4:15 pm on 2nd July 2013.

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Question proposed, That this schedule be the Third schedule to the Bill.

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

I hope to be brief. Various combinations of people reach state pension age before and after the move to a single-tier pension, including in relation to whether a survivor reaches that age. The key is that if the contributor reaches the state pension age before the single-tier pension comes in or dies under the state pension age before then, the survivor gets the current inherited additional pension, whereas if the contributor dies under state pension age after the single-tier pension comes in or reaches that age after that point, they will get half the protected payment, as I described earlier. The schedule sets out in more detail exactly how each of those cases will be dealt with.

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

I do not have much to add to that, except that given how the Minister described schedule 3, it just this moment struck me that there is an obvious cliff edge, depending on whether one is under the old system or the new system and what a half-payment amounts to. Am I right in saying that there is a significant cliff edge? I do not use the term pejoratively, but in terms of the transition from one system to another.

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

Clearly, there is a dividing line before and after. Essentially, in the new system, if you are a married women, instead of getting what I would loosely call a not very good pension—when your husband kicks the bucket, you get half his pension—under single tier, you get a decent pension, but you inherit less and eventually none. It is better that a married woman has a decent pension in her own right from the day she reaches state pension age, rather than have to wait, perhaps 20 years, until her husbands dies to get a decent pension. It does matter which side of the line you are, but as a single-tier pensioner, you get a better flat-rate state pension, but not such a generous inheritance—you get half the additional payment—rather than a lower state pension and a bigger percentage of what your late husband got. We think that married women getting a decent pension in their 60s, rather than waiting until that are in their 80s, is the better way. I commend schedule 3 to the Committee.

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

With the Chair’s permission, I would like to pick up on that explanation. Is the shift from the old system to the new cost-neutral? Do the Government estimate that it will save money, as survivors’ benefits move from the old to the new system?

Photo of Anne Main Anne Main Conservative, St Albans

Before the Minister comes back, I ask Mr McClymont to outline his questions in a speech, rather begin a question and answer session. I assume that that is one of his final questions.

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

I am grateful, Mrs Main.

It is difficult to disentangle the little bits of the system, because this is a whole system in which people get pensions in their own right. There are many consequential facts, one of which is that they do not get inherited rights. Of course, a wife inheriting less of their late husband’s pension saves money—it has to—but a wife getting a bigger pension when they reach pension age, rather than when their husband dies, costs money, and I am not sure that I can disentangle them. The package has been designed, with all the different bits added together, to be cost-neutral. If we had been more generous with inheritance, or had inheritance at all, there is no doubt that it would have cost more in the long run, but paying people decent pensions at 65, or whatever, instead of 85 costs us more. It is a trade off. Again, I commend schedule 3 to the Committee.

Question put and agreed to.

Schedule 3 accordingly agreed to.