My Lords, I thank the noble Baroness, Lady Altmann, for her explanation of these regulations and the uprating order. I thank the Minister also for the follow-up communication dealing with some outstanding points from earlier regulations and note the efforts to be made to publicise the availability of national insurance credits for spouses and civil partners who accompany Armed Forces personnel on overseas postings.
As we have heard, the regulations set the full rate of the new state pension at £155.65. I will say more about this later. The uprating order covers the obligation under Section 150A of the Social Security Administration Act 1992 for the Secretary of State to review certain benefits and uprate by reference to earnings if they do not maintain their value. We are advised that the annual growth in average weekly earnings for the quarter ending in July 2015 was 2.9%. This is therefore applied to relevant benefits.
As far as Section 150 of that Act is concerned, we are advised that the uprating order does not need to include any benefits because these benefits have maintained their value in relation to prices, given that the CPI for the 12-month period ending in September 2015—which was available from mid-October, I think—showed a marginal negative growth rate. This seems to overlap with the benefits freeze in the Welfare Reform and Work Bill, a freeze that extended for four years the previously announced two-year restriction on certain working-age benefits. The Minister will be able to confirm that not all the benefits that are not uprated in this order have been the subject of the freeze provided for in the Bill. These include—I think the Minister
referred to them—attendance allowance, carer’s allowance, DLA, ESA, statutory adoption pay, statutory maternity pay, statutory paternity pay, and PIP.
When we discussed these matters the Government made much of certain disability benefits being outside the freeze. The briefing note provided to us when we were considering the Bill—at a time when the CPI rate must have been known—nevertheless stated:
“To continue to ensure we protect the most vulnerable we are exempting benefits for pensioners, benefits relating to the additional costs of disability and care and statutory payments”.
In the event, many pensioner and disability costs are not to be uprated, for 2016-17 at least. Can the Minister tell us what assessment has been made of the appropriateness of using CPI as a measure of the additional costs incurred by those with a disability, so that the Government can be satisfied that the vulnerable are being protected?
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The uprating secures a 2.9% uplift to the basic state pension in line with the triple lock. This uprating has been applied, as required, to category C and D pensions, to the guarantee credit in pension credit and to rates of industrial injuries benefit. We support the triple lock, although it is the application of the Act and the need to review changes in earnings which has been determinative in these circumstances. I should say that we also support the application of the triple lock to the new state pension and trust the Government maintain this position—I think the Minister confirmed earlier that that is the intention throughout this Parliament. Can the Minister confirm, however, that no uprating is to be applied for 2016-17 to SERPS or S2P, to a pension shared on divorce, to deferred retirement increments or to lump sums for surviving spouses where entitlement has been deferred for future years?
I understood from what the Minister said that we should await some further regulations which are going to come forward, touching on a range of issues. I am not sure I caught them all, although I will read the record and she may wish to just repeat those when she responds. Why are they not being dealt with in the regulations and order before us today? Is this something coming out of Mr Osborne’s hat, among other things that we should expect in due course?
We had a canter round the new state pension a couple of weeks ago when considering other SIs. The Minister did accept, I think, that over the long term the new state pension would be less generous than the current system, although there was the suggestion that this was okay because auto-enrolment would mean that private sector retirement incomes would be higher and could take the strain. We will see, but I understood that encouraging greater saving was so that individuals could have a more comfortable retirement, not to allow the state to step away from its obligations.
The Minister cited several statistics about those who would be better off in the first 10 years or by 2030. You have to look at this right across the piece and at the longer term. When you do that, you should reach the conclusion that this is not cost neutral and that the Government are making savings on this.
We note that by setting the rate of the new state pension at £155.65, the Government have just fulfilled their pledge to set it above the level of the pension credit standard guarantee. It has squeaked home by 5p. We have no issues with it being set at this rate, but there are matters which need clarification. We have given broad support to the concept of the new state pension, and acknowledge that it will over time simplify matters and will accelerate the equalisation of outcomes between men and women. However, I reiterate that we hold to the point that overall, and on the Government’s own figures, in the longer term the new state pension will lead to a reduction in the percentage of GDP applied to pensions and pensioner benefits in comparison to the existing system. Can the Minister say whether she agrees with this point, and if not, why not?
To be clear, we would assert that the increased national insurance to be gained from the abolition of contracting out is a benefit to government in addition to the calculations for pensions and pension credit. Originally some of this was to be earmarked for social care proposals—I think the Dilnot proposals—which have now been deferred. So where is this to be deployed? Specifically, how much will be additional funding to cover the costs of additional public sector employer national insurance arising from the abolition of contracting out?
However, there are nearer-term issues associated with the introduction of the new state pension which, if not properly addressed by the Government, will undermine the introduction of something which should have been a success. These include: the lack of coherence in addressing the reasons for people retiring next year receiving different amounts; the consequences of limited entitlement to derive a pension from a former spouse’s contribution record; the changes to pension saving credit; and of course the continued dismay expressed by the WASPI campaign about the adequacy of the notice given for the change in the state pension age.
On the first point, can the Minister give the Government’s estimate of the number of individuals retiring on or after 6 April 2016 who will receive in 2016-17 a new state pension other than at the full rate, with a broad explanation of those reasons? She will be aware of the figure of just 37% of individuals receiving the full amount, and this is a figure the Government accept. On a wider point, she will have been briefed on data pursued by my honourable friend Owen Smith MP about the potential losses in the retirement income of the younger generation—for those in their 30s, an average loss of nearly £17,000 for men and £18,500 for women, in comparison with the existing system.
On the second matter, colleagues in another place have been pursuing clarity on changes to the pensions scheme that, for the future, will deny a right to derive a state pension based on the national insurance record of a person’s spouse or civil partner. As has been pointed out, in extremis this could leave somebody, particularly a woman, who reaches the state pension age on or after 6 April 2016 with no entitlement to the equivalent of a basic state pension and reliant—presumably depending on circumstances—on the guaranteed credit. It is understood that the Government estimate that up to 2030 some 290,000 people will be
affected, including as many as 30,000 in 2020 alone. Will the Minister say where the issue of transitional protection rests for such individuals? Mention has been made of protecting those women who paid reduced NICs before 1977. Is this the extent of what is planned? I do not think it would cover the whole of the population concerned.
On the savings credit, raising the threshold and reducing the maximum amounts will mean that 1.2 million recipients will lose, on average, £112 a year. Many of those—some 438,000, I think—will receive only the savings credit and therefore will not benefit from the rise in the guaranteed credit. Is it correct that the Treasury will pocket some £135 million a year from these changes—again at the expense of some of the poorest pensioners?
Finally, I turn briefly to WASPI. This issue, although not directly related to the uprating, is overshadowing the pensions scene, including the introduction of the new state pension. The Government will be feeling the heat from the campaign and should be seized of the sense of injustice felt by those women who judge that they were given inadequate notice of the changes to their state pension age and their deferred access to the new state pension. It would appear that this matter is simply not going to go away—as I am sure the Minister saw, there was another article in the Sunday Times just yesterday. I think we know her original view, and I hope that in government she will become a voice for addressing this injustice. A theme running throughout these issues is the importance of effective communication. We know that pensions can be complicated—and transitional arrangements particularly so—but on this score the Government are still failing.