Report stage in the Lords
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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord McKenzie of Luton)Labour- Quote
- My Lords, I beg to move that the Bill be now further considered on Report. Moved accordingly, and, on Question, Motion agreed to.
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Baroness NoakesConservative- Quote
- moved, as an amendment to Amendment No. 78B (moved on Monday, 27 October 2008 at col. 1441), Amendment No. 78TA:
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- Lord McKenzie of LutonLabour
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- My Lords, I thank the noble Baroness for enabling us to talk about these measures and the statutory defence. Before I respond to the amendments in detail, I take this opportunity to deal with some of the issues raised in our debate on Monday, which are also relevant to this group of amendments. I do not seek to resile from the comments about considering this again at Third Reading, if appropriate, but I hope this might obviate or reduce the necessity of further consideration then. On reasonableness, we had a useful discussion about the concept of the Pensions Regulator’s reasonableness and, in particular, its public law obligations, its duties and the constraints which are intended to ensure that it does not behave unreasonably. Both the noble Baroness, Lady Noakes, and the noble Lord, Lord Lucas, expressed concerns about the extent to which the regulator must consider the employer or connected parties when deciding whether it is reasonable to use its powers. In effect, they were querying whether the nature of the regulator’s objectives gave it something of a get-out-of-jail-free card when it came to behaving reasonably towards employers and other parties. I promised to write on this issue, but I hope that, in the interest of informing the rest of this afternoon’s discussions, I can discharge that obligation now. I emphasise that there is a legal requirement on the regulator to act reasonably with regard to those who do not feature in the main objectives set out in legislation. The public law obligation on the regulator means that it must not simply act reasonably toward those it was established to protect, but it must also act reasonably to other parties, including those it regulates. Furthermore, there are specific requirements on the regulator in legislation to behave reasonably; for example, Sections 38(7) and 43(7) of the Pensions Act 2004 both contain express provisions to consider the reasonableness of acting against a particular party. It is also important to remember that the regulator’s decisions can be appealed at the Pensions Regulator Tribunal and in the courts. I hope that comment has proved helpful to the noble Baroness. I wanted to place that on the record. The noble Baroness will also recall that we had some discussion about the operation of the word “might” in the statutory defence. The degree to which a person should consider the potential impact of an act on the pension scheme is a serious question, and it is one that we have considered carefully and discussed at length with stakeholders. The Government intend that the person should undertake a before-and-after comparison of the effect of the act on their pension scheme. We do not intend that the material detriment test and the defence which relates to it should necessitate a broad assessment of almost any adverse possibilities that could befall an employer and their pension scheme over a future period. The defence has been framed to require the employer to make a proportionate consideration of the effect of their act or failure to act. It may be helpful to talk through the detail here. Condition A, at new Section 38B(3), requires that the person should consider, “the extent to which the act or failure might detrimentally affect in a material way the likelihood of accrued scheme benefits being received”. This is not a simple yes or no assessment. It requires serious consideration and contains two concepts: first, what is being considered is the extent to which the act or failure might have a detrimental effect—the key is that there must be a causal link between the act and the detriment; and, secondly, the extent to which there might be such an effect. This should be a standard risk analysis: how likely an event is must be weighed up with its likely impact. The noble Lord, Lord Oakeshott, was correct when he said that this should not be a straight 50-50 test. A 20 per cent chance of a devastating impact on the scheme may be as serious as a 60 per cent chance of something with a more moderate impact. Industry should be comfortable and familiar with this, as it already forms the basis of most due diligence in the realm of pensions. Further, it does not necessarily require an assessment at the very edges of the possible. The statutory defence was designed, with stakeholders, to deal with concerns about hindsight. Condition A operates with condition C and that latter condition says that the person should make the assessment with regard to the prevailing circumstances at the time. Therefore, that would not include anything that the person could not reasonably have expected. Thirdly, and briefly, we had an interesting discussion resulting from the noble Baroness’s query on why it was necessary for P to carry out due diligence themselves in circumstances that she described. I want to take the opportunity to expand on the points that I made on Monday. The legislation is clear that P has to undertake the due diligence but this does not mean that they necessarily have to mitigate the detriment themselves. The legislation requires P to take all reasonable steps to mitigate the detriment and it is intended that this obligation can be met by taking all reasonable steps to ensure that adequate mitigation is in place. I hope that that provides further clarity. Finally on these issues, the noble Lord, Lord Lucas, suggested that the power at line 54 of the proposed new schedule is entirely contained in the power at line 89. That is entirely correct. However, there is good reason for these two powers to be separate. The power in line 54 is a prescribing power to add to the list of factors, providing flexibility to add those factors that should apply in the interests of the employer as well as the pension scheme. It is not a broad power to amend or remove the existing factors in primary legislation, and the list of factors is still constrained by relevance in a particular case. Therefore, in the usual way, regulations made under this power would be subject to the negative procedure. The power in line 89 is a power to amend the existing factors and the scheme obligation provisions. This is a wider power that is intended to provide the flexibility that we have already discussed. As that power would permit primary legislation to be amended, we consider it appropriate to be subject to the affirmative procedure. Hence, it is a separate power. I am grateful for the chance to put those further points on those matters on the record. I turn to the substance of the amendments. They would amend the provisions dealing with how the defence relates to a series of acts, and in particular a group of acts selected by the defence. The regulator can apply the material detriment test to a series of acts it selects. In order to be even handed, the party to the defence can similarly raise a defence in relation to a group of acts that the party selects. The amendments provide an opportunity to set out how the defence will operate in relation to groups of acts chosen by the parties. It is our intention that defendants should have the opportunity to demonstrate that their actions in relation to a group of acts, when taken as a whole, were reasonable. When considering conditions A and B it is possible to argue that due consideration was given to the cumulative detrimental impact of a group of acts and that reasonable steps were taken to eliminate or mitigate the potential detrimental effects of that group of acts. However, condition C requires that the defendant considers the relevant circumstances prevailing at the relevant time, so defendants are required to consider each act within the group individually when considering condition C. The amendment tabled by the noble Baroness opens up significant risk by removing any requirement that conditions A and B be met for the defence. I accept that it is a probing amendment in relation to a group. It also results in different requirements for acts that are dealt with individually and those that are dealt with in groups. In addition the amendments make the defence unworkable in relation to a group chosen by the party. It requires that condition C should be met by the group as a whole. However, as I have explained, condition C is based on having regard to the relevant circumstances at the relevant time. As the amendment does not address how the relevant time would be determined in relation to a group, it is rendered unworkable. This would make the defence fail to work when it was raised in relation to more than one act or failure. A party would therefore be restricted to raising the defence in relation to each act or failure individually, which is the other opportunity under the defence, even when the regulator could look at a series as a whole. The amendment effectively removes a desirable flexibility for employers and other parties who may wish to raise the defence in relation to a group of acts for efficiency reasons. I hope that that helps the noble Baroness. I have spent more than a few hours trying to get my head round the complexities of this process, and would be more than happy to meet her to share them with her. I have tried to explain why the test is set out as it is and why following the path she suggests would not work in practice.
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- Baroness NoakesConservative
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- My Lords, I thank the Minister for setting out more extensively the four items that we debated during our previous day on Report. What he said in each case was extremely helpful. We will have to think about whether it fully answered our questions. At the moment, my instinct is that it takes us a long way there, but I am still not 100 per cent convinced by what the Minister said. It will be important to read what he said and discuss it with those who are advising us on raising these queries for clarification in your Lordships' House. I say the same thing in relation to the group. What the Minister said sounded entirely plausible at the time that he said it. Whether it will appear as plausible when I sit down in the cold light of day tomorrow morning to read Hansard, I am not entirely sure. On the basis that I would like the opportunity to read what he said and, if necessary, to return to the Minister following discussions with those who have raised this matter with us, I beg leave to withdraw the amendment. Amendment No. 78TA, as an amendment to Amendment No. 78B, by leave, withdrawn. [Amendments Nos. 78TB to 78W, as amendments to Amendment No. 78B, not moved.]
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Lord LucasConservative- Quote
- moved, as an amendment to Amendment No. 78B, Amendment No. 78X:
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- Baroness NoakesConservative
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- My Lords, I support my noble friend. He has explained his amendments perfectly well, but I underline the points about individuals. A number of people have expressed concern about this. There is concern that the regulator would have the power to go after individuals. The power to issue a contribution notice is not limited to the amount of benefit. While the regulator has to take account of the benefit that is obtained by a person, the contribution notice can be for any amount. Individuals are concerned, first, that they might not even want to get involved in transactions. Secondly, will we end up burdening commercial transactions with a lot of indemnities, possibly even underwritten indemnities, with cost therefore being built into the system, which could then make it grind to a halt? These are important areas that need clarification.
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- Lord McKenzie of LutonLabour
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- My Lords, I thank the noble Lord, Lord Lucas, and the noble Baroness, Lady Noakes, for the chance to put some issues on the record in relation to the matters that have been raised. I hope I can provide the degree of comfort that is sought. I reiterate briefly what we discussed on Monday: the regulator has said that it cannot imagine going beyond the code. Dividends are not currently included in that draft code. I turn first to Amendment No. 78X. I recognise the concern that individuals may be subject to personal liability, but there are a number of assurances within the existing legislation which address the use of this power. It is already possible, under Sections 38 and 43 of the Pensions Act 2004, for the regulator to issue a contribution notice and, in some cases, a financial support direction to individuals. In most cases it would not be reasonable for the regulator to take action against an individual, and the recipient of a notice would more usually be a corporate body, such as the company that was party to the act. There may, however, be rare cases where it is appropriate to take action against an individual, be that a company director or otherwise, under the material detriment test. I remind noble Lords that the regulator’s use of this power is subject to a number of checks and balances. First, the regulator must act proportionately and only where reasonable. This is a fundamental requirement. Secondly, as I have already mentioned, there are specific safeguards relating to the material detriment power, including a statutory code of practice which will set out the circumstances for its use. Individuals, like corporate bodies, would be able to rely on this as a defence. Importantly, the government amendments would create two new reasonableness factors for the regulator to consider before deciding whether to issue a contribution notice; that is, the regulator must consider the reasonableness of the person’s actions in the circumstances and, where relevant, the value of the benefits received directly or indirectly from the employer or scheme. This is set out in Section 38(7)(ea). Those two extra powers relating to reasonableness apply not only to the new provision, but to the two existing legs of the contribution notice arrangements Finally, as with current practice, any determination to use this new test would be made only by the regulator’s determinations panel, which is independent of those responsible for gathering evidence. The panel will hear both sides of a case. Only if the panel agrees to the regulator’s case can action proceed. Whether or not to issue a contribution notice would of course remain a matter for the regulator. I would go so far as to say that the regulator must get over such a number of hurdles and build such a strong case before it can issue a contribution notice to an individual on the basis of the material detriment test that an individual would know that their intended act was far out of line with reasonable business practice and likely to attract the interest of the regulator. However, if an individual is concerned that they may be party to an act that could lead to them being subject to a contribution notice, they may of course seek clearance from the regulator. A clearance statement would give them certainty that their actions could not attract a contribution notice.
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Lord Oakeshott of Seagrove BayNon-affiliated- Quote
- My Lords, on Amendment No. 78X, I wanted to listen carefully to the qualifications that the Minister gave. Does he accept that, on the basis of what he said, we on these Benches feel that it is entirely appropriate that there should be a reserve power to issue a contribution notice to an individual? That is an important ultimate safeguard for pension funds.
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- Lord McKenzie of LutonLabour
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- My Lords, I am grateful for the noble Lord’s intervention. He is right: individuals cannot be immune from these regulations, although the circumstances in which they are likely to be the subject of the contribution notice are properly constrained by these provisions. Amendments Nos. 78Y, 78AL and 78AM relate to the possible conflicts that could be faced by trustees who are also company directors as a result of the interplay of trust law, pensions law and directors’ duties under company law. The interaction of pensions law, trust law and company law is an important issue, and the Government’s intention is that the duties in the legislation should rightly sit alongside each other. Taking the duties of directors under the Companies Act, I understand that noble Lords may be concerned that directors who otherwise act in accordance with duties under that legislation should not be liable to regulatory action. Directors have certain duties to current employees, but under pensions legislation they also have duties to scheme members’ interests. It is of course a matter for directors to balance these duties along with their other responsibilities. Such situations are not unusual. It is not the Government’s or the regulator’s intention that, in the normal course of their duties, directors should be subject to a contribution notice under the new test, where their actions have no materially detrimental effect on scheme members’ benefits. Finally, Amendment No. 78Z relates to insolvency practitioners and similar experts. Section 38(3)(c) of the Pensions Act 2004 already provides an exemption from a contribution notice for an insolvency practitioner acting in accordance with his functions. The noble Lord’s amendment would extend this exemption to recognised experts in rehabilitating underperforming organisations, such as company doctors and turnaround specialists. “Insolvency practitioner” is a precise term set out in law, and such individuals are licensed to act by the Secretary of State and have a statutory duty to ensure that they treat all creditors fairly and equitably. As was touched on in Committee, the amendment, which is extremely wide and capable of varying interpretation, would extend the existing exemption to practitioners who are not licensed or acting in accordance with statutory duties. There is a genuine risk that such a provision would mean that the regulator’s power could be circumvented. This could put members’ benefits and the PPF at risk. However, the Government recognise the need to protect people such as company doctors who have to make difficult decisions with wide-ranging impacts. The amendments to the reasonableness factors I referred to earlier are relevant here. In addition, a new factor would be introduced by the government amendments that would be particularly relevant to company doctors and others in similar roles; that is, the regulator should, where relevant, consider, “the likelihood of relevant creditors being paid and the extent to which they are likely to be paid”, in Section 38(7)(eb) of the Pensions Act. This will offer some protection to company doctors as it makes clear that, while pension schemes should not be treated worse than other creditors of similar status, equally the amendments do not somehow make the pension scheme any type of “super-creditor”. Taken with the factor I described earlier, which requires the regulator to consider the reasonableness of a person's actions in the circumstances, I consider that this provides significant comfort to company doctors. First, where a company doctor has to make hard decisions in an attempt to save a company, these factors would protect the position of a company doctor who had to cause detriment to a pension scheme, which, in the particular circumstances, was reasonable in the context of the outcome for other creditors. Secondly, the regulator would need to take into account that, in some circumstances, decisions must necessarily be rapid, as the noble Lord has indicated, and perfect data to inform the decision may not be available. Provided that the company doctor has behaved reasonably and has not, for example, wilfully ignored available information or recklessly taken risks that a reasonable company doctor would not have taken, I believe that members of organisations such as R3 and the Institute for Turnaround should take significant comfort from these provisions.
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- Lord LucasConservative
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- My Lords, I am very grateful for that answer and will study it with interest in Hansard. This exchange has helped increase my understanding of why, among all the professions in the City, it is the lawyers who are still hiring. I beg leave to withdraw the amendment. Amendment No. 78X, as an amendment to Amendment No. 78B, by leave, withdrawn. [Amendments Nos. 78Y to 78AM, as amendments to Amendment No. 78B, not moved.]
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- Baroness NoakesConservative
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- moved, as an amendment to Amendment No. 78Y, Amendment No. 78AN:
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- Lord McKenzie of LutonLabour
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- My Lords, as I mentioned briefly on Monday in introducing my amendments, we are seeking to amend the insufficiently resourced test that must be satisfied if the regulator is to issue a financial support direction so that a group of associated or connected persons cannot avoid their pension liabilities by dividing up their resources between them. A financial support direction may be issued where the employer in relation to a pension scheme is a service company or insufficiently resourced. It can direct persons who are associated or connected with the employer to put in place financial support for the pension scheme. As a result of the way the Act is drafted, the direction may only be used if there is a single person who meets the test of being sufficiently resourced. Once the test is satisfied, the direction could be issued to any of the associated or connected parties, subject to reasonableness. This means that the direction could be avoided simply by dividing resources between the associated and connected parties so that no single party was sufficiently resourced. The Government’s amendment tackles this problem by providing that a direction may be issued if there are two or more connected or associated parties who between them meet the test of being sufficiently resourced. The amendment of the noble Baroness would remove the regulator’s ability to show that a group of associated or connected persons are between them well enough resourced to meet the test. I understand it is a probing amendment and am sure the noble Baroness will agree that it is wrong that a group of companies could take advantage of a loophole and arrange matters so that they avoid meeting their pension responsibilities. The CBI, for example, supports the change we are making. Some concerns were expressed in the consultation that an unrelated investor or company could be exposed to greater risk of a financial support direction as a result of the proposed changes. It is unlikely that an otherwise unrelated company in another venture capital portfolio who is strictly connected and associated with an employer but remote from the employer and its scheme could find itself liable under a direction for another group’s pension deficits. The current legislation already requires the regulator to consider all relevant facts, which can include the value of any benefits received from the employer, the company’s relationship with the employer including whether it controlled the employer, and the company’s connection or involvement with the scheme. It would likely be unreasonable for the regulator to issue a financial support direction where there was no persuasive evidence of such benefit, relationship or involvement. Crucially, none of that is affected by this amendment, which simply relates to the closure of a loophole for triggering the financial support direction, not the range of persons to whom the financial support direction could be issued. It does not change the range of people who could be reached. I hope that puts matters clearly on the record for the noble Baroness and has reassured her again in an area where I know there are some concerns.
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- Baroness NoakesConservative
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- My Lords, I thank the Minister for that response. I was aware that the amendment was defective; it was only for the purpose of putting the issue on the table and getting the Minister to describe the intention in relation to technically connected but in practice unconnected companies within, for instance, private equity groups. The Minister explained that reasonably. I beg leave to withdraw the amendment. Amendment No. 78AN, as an amendment to Amendment No. 78B, by leave, withdrawn. On Question, Amendment No. 78B agreed to.
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 78AP:
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Baroness Hollis of HeighamLabour- Quote
- My Lords, I am so very glad to support this amendment today. I was never quite sure that this day would arrive. This will, in future, help women like Pam, who fostered more than 70 children for Surrey County Council and did not get a stamp for any of those years. It will help women like Carol, with two children of her own, who also cared for her grandmother, who was bedridden for 10 years with arthritis, a frail mother-in-law and a father-in-law suffering from dementia, and also fitted in voluntary work in a hospice. Such lives of quiet heroism. By being able to buy back an additional six years of national insurance, many women coming up to retirement will, as my noble friend said, now be able to build a full state pension—and others a pension much enhanced. Even if women, or men, took out a loan, the pension increase would more than cover the cost of that loan. In this climate of financial tsunami, a secure state pension matters even more to the lower paid. Of course, I would like this to go further. Ideally, it would be back-dated for older women who had already reached state pension age. I also noticed that my noble friend said that the price of voluntary NI contributions needs to rise, irrespective of this amendment, because from 2010 its value will go up by 50 per cent for men and, therefore, it is reasonable to adjust the price accordingly. The 20-year rule announced by my noble friend is also very sensible, as it excludes the casual Australian backpacker but will help all those women who, for example, can do better from buying back than on the married women’s dependency stamp, or who would otherwise be better off on pension credit. No doubt other noble Lords will wish to press my noble friend on further details. I shall just spend a last moment or two to say thank you. First, I thank the press, from the Daily Mail through to the Guardian, and particularly to that inner group of friends and colleagues from the Equality and Human Rights Commission, Age Concern, Help the Aged and Carers, which built a broad coalition of support, including the Federation of Women’s Institutes and the Federation of Small Businesses, from NAPF to the trade unions to the Fawcett Society. Furthermore, I thank the DWP, which, as my noble friend said, has always been sympathetic in so far as it was allowed to be—and, above all, my right honourable friend James Purnell, Secretary of State, who in last year’s and this year’s Bill together will help to transform the situation for women’s pensions. He has been a true friend to women. Finally, and above all, I express my gratitude to your Lordships tonight. Thanks to your support all round the House, 500,000 women will be able to build a decent state pension. They will find it worth saving; many now will not need to turn to income-related, means-tested benefits; and all of them will have a decent recognition of the contribution that they have made to society through caring and family responsibilities. Without your Lordships, it would not have happened. Indeed, I rather doubt that it could have happened in the other place at all. It is a really good and special thing that we together have done—and, if I may, on behalf of 500,000 women, I thank you all very much indeed.
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Lord Clarke of HampsteadLabour- Quote
- My Lords, I have not been a regular attender during the passage of this Bill and, until last Sunday, I had no idea of the problems that a minority will face when this measure goes through. It would be churlish not to recognise the sterling work of those who pursued this matter for so long and, in particular, my noble friend Lady Hollis. However, I draw the House’s attention to an anomaly. Some of your Lordships may have read about it in the Daily Mail; my noble friend has just mentioned that it has been supportive. The Daily Mail published a report on Monday about Felicity Hammerton, who falls outside the 6 April deadline and will not be able to get the full benefit. At this very late stage—although I know that I cannot change anything—in his consideration of further details, will the Minister not lose sight of the fact that there is a need to go further? I understand about affordability and that there are difficulties, but I also understand the plight of women such as Felicity Hammerton who, through no fault of their own, fall outside the advantage that has been given to the large number of women to which my noble friend Lady Hollis referred. My plea, as much as I can muster any plea at all, is that that is not lost sight of and that, if it becomes affordable and if things change, it will be revisited with a view to extending the potential beneficiaries in the way I described.
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Lord SkelmersdaleConservative- Quote
- My Lords, I referred in Committee to the fact that your Lordships’ campaigns eventually become law, so I am sure that everyone in the House will join me when I say how delighted I am to congratulate the noble Baroness, Lady Hollis. Her perseverance in this matter has been quite outstanding even by the standards of your Lordships’ House, where many of us are dedicated to seeing a particular injustice eradicated, and I am sure that no government concession has ever been more deserved. The battle has certainly been hard won. Right up until last week there was little indication that the Government would ever accept that the inequality which persists between the sexes in attaining full eligibility for the state pension warranted a move of this kind. The battle has also been protracted because of the ever present concern for cost. The Minister has managed to present us today with a package which he claims to be cost-neutral. There is no doubt that if such an apodictically beneficial result as the one sought by the noble Baroness could have been delivered without regard to cost, we would have wrapped up the issue long ago. That brings me to the contribution of the noble Lord, Lord Clarke. When one is making changes to social security benefits—in essence, a state pension is a social security benefit—there are always, alas, cliff edges. The trick among policy-makers is to make sure that the cliff is as low as possible. I am afraid that I cannot remember a single occasion in the years that I have been studying this matter when there has not been a cliff edge of some kind in any changes that have been made. Perhaps the noble Baroness, Lady Hollis, will be able to correct me on that statement. The Minister has stated that the price of class 3 NICs will be raised soon anyway to account for the fewer years that will now be needed to qualify for a full state pension. As I understand it, the 110,000 or so people who might benefit from the move initiated by the noble Baroness, Lady Hollis, will be included among the many more who will benefit from the new requirement to pay NICs for only 30 years rather than 39 or 44. I cannot express absolute, totally unqualified approval because, although these amendments are claimed to be cost-neutral as regards the government purse—which was my objection to the original suggestion of the noble Baroness, Lady Hollis, last year—they will not be cost-neutral for contributors. No doubt more people will be receiving a full state pension, but they will have paid for such a benefit themselves. I would not be doing my job if I did not ask several more questions that need to be asked on this matter. In particular, by how much does the Minister envisage the price of class 3 NICs rising? Can he confirm that this price rise will be implemented in the next Budget, or will it be implemented in 2010 when the operation starts? Will the rise be extended across all classes of NICs or just be restricted to one? Above all, can he assure us that the increased revenue the Government will receive will be no more than the extra payments they will make? If this is not to be the case, then what we are seeing here is not a cost-neutral proposal but a revenue-raising one cunningly attached to the delivery of a genuinely praiseworthy aim. Are we therefore—I hope to goodness we are not—looking forward to another stealth tax? I would also be interested to hear from the Minister how much of a saving the Government expect to make on pension credit payments as a result of these provisions. I am interested to hear how many of those eligible to make these contributions the Government are expecting to participate. Concerns have been aired in the media—after all, it is too much to expect that such a positive news story for the Government would be postponed until Parliament had heard of their intentions—about both too high and too low a take-up. Not only have commentators noted that some who would benefit from making these extra contributions might be unable to find the money to do so, but quite rightly there is a real possibility that some of the 40 per cent of pensioners likely to be eligible for pension credit might waste their money on voluntary contributing, only to realise that that will result in no additional retirement income. We often raised this subject in the early stages of the Bill. I hope that the Minister will go into some detail about what kind of information campaign the Government intend to wage to ensure that neither of these unwelcome outcomes comes to pass. Who will conduct it? Will it be the pensions agency or some other body? Will the Minister also confirm that all the restrictions that currently apply on who may buy class 3 NICs will be extended to these extra contributions as well? Will those with the married women’s stamp or those who contracted out even for a short period be able to take advantage of the provisions? I realise that I have spoken for quite a long time but these questions need to be asked in order to make a proper assessment of this welcome outcome.
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Baroness Thomas of WinchesterLiberal Democrat- Quote
- My Lords, from these Benches, we, too, welcome the Government’s change of heart. We pay our own tribute to the Minister, who has worked hard to make it happen, and to the noble Baroness, Lady Hollis, who also has worked tirelessly to reach this outcome. I fear that it is in the nature of concessions that, the minute one is made, and a good one at that, people always want more. The noble Lords, Lord Skelmersdale and Lord Clarke, have spoken about that. There will, of course, be women who are bitterly disappointed that they are being left out. Some thousands of women—men as well as women, but mostly women—will certainly benefit if they can afford to buy the missing years outright or can take out a loan to do so and have 20 years’ national insurance contributions already under their belt. However, the Government have set the bar quite high. There are many more thousands, mostly but not exclusively women, who are not able to access a higher pension because they have no chance of fitting in 20 years of national insurance contributions. One other group for whom the door has been firmly shut is those who are already over 60, even if they have not yet picked up their pensions. I again refer noble Lords to the case reported in the Daily Mail on Monday concerning one lady. Are the Government prepared to look again at this situation? After all, it cannot affect that many women. I should like, finally, to draw attention to some sage advice by the pensions guru Dr Ros Altmann which also echoes what the noble Lord, Lord Skelmersdale, has just said. She warns those with an incomplete national insurance record to take expert advice before they buy back extra years, because they might qualify for means-tested pension credit. She also warns those who do not have good health to take advice before buying extra years. This brings me back full circle to the importance of the availability of good financial advice, rather than just general information, for those about to retire. As time goes on, such advice becomes more and more important. I hope the Government will keep us informed of the measures they are taking in that matter.
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Baroness Howe of IdlicoteCrossbench- Quote
- My Lords, I add my congratulations to those already offered to the noble Baroness, Lady Hollis, on the courageous and determined battle she has fought on behalf of us all and which she has at last won, or at least won as far as one could expect at this stage. I also congratulate the Government on the real improvements that they have introduced in the Bill following the Turner report’s recommendations, particularly the improvements for carers, the majority of whom are women. We should always remember that women are among the poorest pensioners. It remains shaming that only 30 per cent of women compared with 95 per cent of men currently retire on the full basic state pension. By 2010, however, that percentage will have increased to 75 per cent, even if it is likely to be as far away as 2025 before men and women reach the state retirement age with an equal entitlement to the full basic state pension. This pathway all too clearly illustrates, once again, the considerably greater sacrifice that women have made and will continue to make. By the time that an equal retirement age is achieved for both sexes, women will have sacrificed some seven years from their original or earlier state retirement age of 60 while men's loss will be about two years, from 65 to 67.
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Baroness O'CathainConservative- Quote
- My Lords, the Minister opened his comments by saying “I have pleasure” and “we have listened”. Both those things are wonderful so I thank him very much. Of course, like everyone else, I must thank the noble Baroness, Lady Hollis. I first came into contact with her when we were in government dealing with pension splitting on divorce some 13 or 14 years ago. I realised then what a formidable person we had and how lucky we were to have her in this House. Ever since then, she has done by quiet determination some things that all of us try to do but do the wrong way, so well done to her. She thanked everybody for the cohorts of support she received—from the Federation of Small Businesses, the Women's Institute, Age Concern and so forth—but none of that was likely to come together in a voluntary manner without her constant, gracious, charming but determined impact. She is wonderful and we are wonderfully lucky to have her. I have been wonderfully blessed in working with her. I thank her very much.
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Lord Mackay of ClashfernConservative- Quote
- My Lords, I was one who experienced defeat at the hands of the noble Baroness when we were in government. She convinced me a long time ago of the propriety of this amendment, which has now been made. I would like to join in congratulating her on the way that she has conducted this and on the result achieved. No doubt there are Oliver Twists about in connection with these amendments, but I am sure that the Minister will do his best to achieve such justice as is possible. I congratulate him also.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- My Lords, I am sorry if I spoil the congratulatory party. My noble friend Lady Thomas has already put on record—and I am happy to do that, too—our thanks to the noble Baroness, Lady Hollis, for this campaign. However, under the circumstances and given the very great strength of feeling that there was on all sides of the House last year, this is a pretty disappointing outcome. I am afraid—the noble Lord, Lord Skelmersdale, made some of the same points—that the costs and prices are very unclear. Women are being offered a tempting meal, from a menu without prices, in a restaurant that they may not be able to afford. How can it be possible to remedy what we all agreed was a major injustice to women on a cost-neutral basis? Can we be told how much women will have to pay over and above the increases that the noble Lord was talking about, so that this can be achieved on a cost-neutral basis? Who is going to pay? Will the cost of buying back these added years be prohibitive for women? What are the numbers? At the moment, women born before 5 April 1950 can make a voluntary class 3 contribution of £421 to buy an additional state pension worth £121 a year. That is clearly very good value. As noble Lords have already pointed out, in quite a few cases people will lose pensions credits. We must make sure that the advice gets through properly. In particular, what is the extra cost going to be? I must comment on the way in which last week’s announcements were handled. There was no problem for James Purnell with the favourable publicity: he was there in the centre of the photograph when he was claiming credit. However, when there was any question of what the bill would be, he was airbrushed out. On a matter such as this, where feelings are so strong, I would have thought that the Government would have told us what the bill and the extra costs will be. The strength of feeling in this House and in the country is such that it is disappointing that the Government have been allowed to get away with taking the credit at no cost. We on these Benches would have been happy to support more money being put in. We think that, for women, this is at the moment a bit of a pig in a poke.
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- Lord McKenzie of LutonLabour
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- My Lords, I am grateful to all noble Lords who have spoken in this short debate, and, despite some adverse comments, for the warm acceptance that these provisions have elicited. I am also grateful for the praise that has been universally, and quite rightly, heaped on my noble friend Lady Hollis. I say to the noble and learned Lord, Lord Mackay, that I have shared his experience of being defeated by the noble Baroness. One trepidation I have is that, now that this campaign is won, what on earth is my noble friend going to move on to next? Perhaps I will think about that later. My noble friend talks about these things not in terms of aggregates and numbers, but how they will affect real people’s lives. I know that is what drives her passion. She makes the point also about the importance of a secure basic state pension. I will come to the issues around the price of class 3 contributions. Irrespective of this measure, post-2010, people will be able to buy one-30th of a year with a year’s contributions, rather than a 44th or a 39th, as at the moment. This means that there should be an adjustment in class 3. However, this should not be seen as an increase. I am grateful for my noble friend’s comments about James Purnell, who was Pensions Minister when we debated this, in relation to the Pensions Act 2007. He is now the Secretary of State. I say to my noble friend, Lord Clarke, that I understand his point, which I believe the noble Lord, Lord Skelmersdale, dealt with in part. When changes are made in legislation—and the changes we made last year will be a very significant improvement in the pensions outcome for women—there is always an issue about the extent to which you apply resources and effort to unpicking the inequalities of the past. One issue we looked at was whether we could apply the 2010 rules to all existing pensioners. However, noble Lords will remember that the price tag for that was very substantial, and unaffordable. Inevitably, there will be a cut-off point and some people will fall one side of it rather than the other. However, I am mindful of my noble friend’s comments and am certain that we will do all that we can to help people who fall outside these provisions. In particular, we will ensure that they are able to benefit fully from the reliefs and pension credit that would otherwise be available. I thought that the noble Lord, Lord Skelmersdale, said that we were reluctant to recognise the inequality in the pension system. However, the whole thrust of the Act that we passed last year was to dramatically change the landscape for women whose working lives would be wholly or substantially under the new regime. We are very proud of that, although the noble Lord made the point that changes such as this inevitably produce cliff edges. He asked several questions. Certainly, the measures that will make the change cost-neutral will be applied only to class 3 national insurance contributions. They will be applied to all class 3 contributions, which I think is what he asked. He also asked when this would all take effect. The detail is still being worked on but it is ultimately for the Treasury to deal with these matters and I expect it to do so in the normal way at the Pre-Budget Report. The noble Lords, Lord Skelmersdale and Lord Oakeshott, pressed me to say what the cost will be. Initial modelling suggests that the price increase will be around half the existing rate, but I should also stress that the existing rate is a substantial reduction on the actuarial value. The current cost of a class 3 contribution is £8.10 a week but its current actuarial value is something like £45, so there is still a substantial gap between the two.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- My Lords, is the Minister saying that under his proposals the women who now pay £421 to buy an additional year are likely to pay about £650?
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- Lord McKenzie of LutonLabour
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- My Lords, I am saying that some of the initial modelling shows that it would take a 50 per cent increase for the package to be cost-neutral. If you took away the adjustments for the class 3 contributions, the present net value of the cost would be about £600 million, which is about one-third of the figure that we talked about in relation to the original proposal. However, I stress that there will in any event be a need to adjust the class 3 price simply because the deal changes post-2010, and only the initially modelling has been done. There is more work to do and ultimately it is for the Treasury to deal with it. The noble Lord, Lord Skelmersdale, made the point that it will not be right for everyone to take up this opportunity. Those who have, or are heading for, pension credit could spend money but get just a net nil out of it. He is absolutely right about that, as he is with regard to the importance of an information campaign to ensure that people have the right information.
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Lord Kirkwood of KirkhopeLiberal Democrat- Quote
- My Lords, it would be helpful if the Minister could confirm that the national insurance recording system should have the details of the 110,000 people involved. The noble Lord, Lord Skelmersdale, rightly suggested an information campaign but, with a little software tweaking, would it not be possible for letters to be sent to those people saying that this is an offer they should seriously consider in future?
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- Baroness Hollis of HeighamLabour
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- My Lords, something like 550,000 women could benefit, but our estimate of the take-up could be substantially lower than that. Of course, that depends absolutely on the point that the noble Lord has made—that is, how far women know about this very attractive deal for them to build up their pension.
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- Lord McKenzie of LutonLabour
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- My Lords, my noble friend is right. I stress again that some of the detail and the practicalities have to be worked through. I talked about an information campaign and certainly that would not preclude letters being sent to individuals for whom the opportunity may be beneficial. The noble Lord, Lord Skelmersdale, asked about reduced rate contributions. The right to use class 3 contributions to buy back extra years for the periods when reduced rate contributions were paid is not available. It is not permitted under the current rules and there are no proposals to change that. Therefore, if someone paid a reduced rate contribution for an earlier year, they could not now replace it with a class 3 contribution. However, that is not a change; it is the existing law.
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- Lord SkelmersdaleConservative
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- My Lords, if I may find out a little more, does that include not only the married women for whom, as the Minister says, it has been phased out, but the contracted-out?
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- Lord McKenzie of LutonLabour
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- My Lords, I would like to think about that as I am not sure it does, so perhaps I could revert to the noble Lord. I look to the Box, from where some help may be coming down on that, and in the interim I may move on to another point. I think that the noble Lord was asking about people who have contracted out of the state second pension. Class 3 national insurance contributions only help people to build up entitlement to basic state pension and bereavement benefits. They do not help people build up entitlement to state second pension, so on that issue this amendment would have no impact on such entitlements and it makes no difference whether somebody is contracted out of the state second pension.
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- Lord SkelmersdaleConservative
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- My Lords, that is a lovely answer but, unfortunately, it is to a question that is not at all what I asked. Perhaps the Minister can send me one of his multifarious letters in due course.
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- Lord McKenzie of LutonLabour
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- My Lords, I will certainly do that. Perhaps that was a question that the noble Lord should have asked. The noble Baroness, Lady Thomas, also raised the point about the cut-off and the people who will potentially benefit from that. I think that I have dealt with that point: inevitably, introducing any change will mean that some fall within its provisions and some outside it. On her point about access to good information or its availability, I agree on the access to advice. We have discussed that in another context and the noble Baroness makes a good point. The noble Baroness, Lady Howe, ingeniously raised again the issues around annuities. She will forgive me if I am not drawn into that debate again now; maybe my noble friend will turn her attention to that as the next campaign. The noble Baroness, Lady O’Cathain, was supportive of this and on behalf of my noble friend I am grateful for her comments. On cost, for the noble Lord, Lord Oakeshott, I think that I have dealt with that. The net present value, subject to class 3 changes, is £600 million. Issues around pension credit are important, for we need to get information out so that people do not take up that opportunity if it will not benefit them. I hope that I have dealt with each point raised, and am grateful to all noble Lords for the support for this measure. I conclude by thanking my noble friend Lady Hollis again for all of her efforts: perhaps she could go easy on me for the next few months, if she would not mind. On Question, amendment agreed to.
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- Lord McKenzie of LutonLabour
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- moved Amendment No. 78AQ:
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Lord TunnicliffeLabour- Quote
- moved Amendment No. 79:
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- Lord TunnicliffeLabour
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- moved Amendments Nos. 80 to 85:
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- Lord TunnicliffeLabour
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- moved Amendments Nos. 86 and 87:
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- Lord TunnicliffeLabour
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- moved Amendments Nos. 88 to 92:
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