Commons statement on Pensions Update - Sep 7

The Secretary of State for Work and Pensions (Dr Thérèse Coffey): With permission, Madam Deputy Speaker, I will make a statement on the annual uprating of state pensions and survivors’ benefits in industrial death benefit.

Each year, as the Secretary of State for Work and Pensions, I am required to undertake a review of certain benefit and pension rates in relation to the general level of earnings. Just as last year, this year I anticipate an unusual change in earnings due to the effects of the covid pandemic. The unprecedented but necessary covid restrictions we introduced last year protected lives, especially the most vulnerable, many of whom are pensioners, and protected the NHS, but those restrictions caused disruption to the economy, including preventing many people from working, wages falling and, sadly, many people being made redundant.

As we sought to protect lives, so we sought to protect livelihoods. To mitigate the worst impacts, we introduced a £407 billion package of support, including the furlough and self-employment schemes, to support incomes. Nevertheless, last year we saw earnings fall by one percentage point. In response, we legislated to set aside the earnings link, allowing me to award an uprating of 2.5%, as that was higher than inflation. If we had not done that, state pension would have been frozen.

Thanks to our vaccination programme, which started with the eldest and most vulnerable in our society, we have seen that as the economy and businesses have reopened and millions have moved off furlough and returned to work, the labour market has shown strong signs of recovery and earnings have risen at an unprecedented rate. We face a distorted reflection of earnings growth. The latest Office for National Statistics figures from August show an increase in average weekly earnings of 8.8%, compared to the same time last year. Confirmed figures will be published next month, but we expect growth of 8% or more for May to July 2021. The relevant period earnings are taken into account as part of my uprating review.

This year, as restrictions have lifted and we experienced an irregular statistical spike in earnings over the uprating review period, I am clear that another one year adjustment is needed. So tomorrow, I will introduce the social security (uprating of benefits) Bill. For 2022-23 only, it will ensure that basic and new state pensions increase by 2.5% or in line with inflation, which is expected to be the higher figure this year. As happened last year, it will again set aside the earnings element for 2022-23, before being restored for the remainder of this Parliament. That will ensure pensioners’ spending power is preserved and protected from higher costs of living, but also ensure that as we are having to make difficult decisions elsewhere across public spending, including freezing public sector pay, pensioners are not unfairly benefiting from a statistical anomaly. At a time when we have made tough decisions to restore the public finances which have impacted working people, such as freezing income tax personal thresholds at current levels, that would not be fair. Setting aside the earnings element is temporary and only for one year. This means we can and will apply the triple lock as usual from next year for the remainder of this Parliament, in line with our manifesto commitment.

While the earnings growth is a welcome sign of the country’s overall economic recovery given the unique and exceptional events of the past 18 months, this year’s measure is being skewed and distorted, reflecting a technical and temporary period of reverting or rebounding earnings—the differing cohorts of people who were retained or made redundant. As a result, the earnings measure is a statistical anomaly and is not a real-life basis for considering this year’s uprating of state pensions. As other commentators have said, for example the Institute for Government:

“The figure for earnings growth is distorted...the increase is artificially high because so many workers were furloughed last year”.

The Social Market Foundation also endorses my proposal, stating:

“The triple lock should be replaced with a double lock...pensions would still rise, but less quickly, reducing the fiscal burden on the working-age population”.

In addition to those receiving basic and new state pensions, this adjustment will apply to those receiving standard minimum guarantee in pension credit, and widows’ and widowers’ benefits in industrial death benefit. The Bill will not extend to other benefits that are linked to prices, which I will review under the existing legislation, as I did last year.

The Government are committed to ensuring that older people can enjoy their retirement with security, dignity and respect, and that those who have worked hard and put in for decades can be confident that the state will be there to support them when they need it. Since 2010, the full yearly basic state pension has increased by over £2,050 in cash terms. There are also 200,000 fewer pensioners in absolute poverty, both before and after housing costs, than in 2009-10.

I am proud of our record on support for pensioners and of the action we took last year to ensure that pensioners’ incomes continue to increase despite falling earnings among working-age taxpayers. Our recovery is based on the principles of fairness and sustainability as we level up opportunities across the country, invest in jobs, skills and public services while repairing the public finances. This is the fair and reasonable course of action, given the temporary statistical anomalies in earnings we have seen this year as a result of unprecedented interventions in the economy and the labour market. I commend this statement to the House.

14:28:00

Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
I thank the Secretary of State for advance sight of her statement and for our telephone conversation this morning after the Cabinet meeting informing me that it would occur.

I believe Governments should keep their manifesto promises. It may be out of fashion—it may even seem old-fashioned—but that is what I believe and that is what is right. Before I address this announcement, I want to make some observations about the triple lock policy itself. The UK state pension is low by international comparison. It compares better when pension credit and the NHS are folded in, and a lot better when occupational pensions are considered, but the core state pension itself is still very important for millions of pensioners. The last Labour Government drastically reduced the link between old age and living in poverty, but there can be no room for complacency. The triple lock and the issue of indexation of the state pension is fundamentally about what the value of the state pension will be in future for working people today when they retire. I reject the presentation of this issue as a source of intergenerational tension or unfairness, because we all have an interest in ensuring that there is a decent state pension in future.

We should never present increased longevity as a problem. The fact that people are living longer is a good thing and it has come about because we have an NHS, because the school leaving age is no longer 14, and because pioneering Ministers of the past, such as Barbara Castle, were prepared to fight for a decent pension and retirement system. There is no doubt that the triple lock has made a significant contribution to restoring the value of the state pension following the Thatcher Government’s decision to break the link with earnings in 1980.

Turning to the Secretary of State’s proposals, the Government’s case, which is that the furlough data and the pandemic have produced a statistical aberration, has to be considered by us alongside the other decision made today, which also breaks the promises in the Conservative manifesto. Of course, we know that the promise on international aid was also broken before the recess. It is more a triple let-down than a triple lock. This decision is not a one-off but a significant repudiation of the basis on which the Government were elected and it would be naive to say otherwise.

I say to the Secretary of State that we simply cannot take the Government on their word alone. Will they show us their analysis that has led to this decision? Will they explain why they could not assess the underlying levels of wage growth with the impact of furlough discounted? Will they publish the legal advice cited as the basis for this decision? Only then could any Opposition or any MP make a decision on what is being proposed.

Finally, while the Prime Minister is well known for making and breaking promises at will, and for frequently being economical with the facts, that does come at a cost. That cost is a lack of trust, so I hope the Secretary of State appreciates that pensioners and workers, as well as the Opposition, need fuller reassurance before any decision can be made on prospective legislation.

Dr Coffey
I thank the hon. Gentleman for having read the statement and for recognising some of the challenges that we face. I accept that it is his role and that of the Opposition to suggest that the Government are not taking the right course of action. However, this is where I disagree with him. He referred to the earnings link that was dropped in, I think, the late ’70s or early ’80s. It was not reinstated by the Labour party until the late noughties and was not commenced until the coalition Government were in place. That is why we have followed the triple lock policy for the last decade, recognising that we wanted to restore the earnings link and to see an increase in pensions overall. We have made good progress on that, as I set out, with the £2,050 cash-terms increase in just over a decade.

We have used the earnings link since the policy came into effect a decade ago, and we have done this on the same basis. As for trying to mess about with different bits of earnings, the Office for National Statistics produced some data but we did not find it necessarily reliable, in terms of what could be considered as a substantiated basis to make the change. I have made the recommendation to the Government—that has been endorsed today and I hope that the House will endorse it in the forthcoming legislation—to set aside the earnings link, as we did last year, recognising the challenges of covid and the implications that that would have had last year directly on pensioners. There is the same fairness of approach here.

I do not intend, as is usual, to publish legal advice. That legal advice is quite straightforward. I would summarise it as “The best way to introduce this temporary set-aside is through legislation, just as we did last year.” I intend to take this forward on that basis.

As for making comparisons with other countries, I am conscious that we have a substantial amount of occupational pension here. We also have a whole fringe of pensioner benefits alongside it that are not necessarily available in many other countries. Just this year alone, which is about to come to an end, while the pension cost is about £105 billion, we are spending about £129 billion directly on pensioners. We have genuinely shown a measured approach to supporting pensioners during our time in office. We think this is a sensible thing that will be broadly welcomed by the public, recognising the balancing act that we continue to face.

Stephen Crabb (Preseli Pembrokeshire) (Con)
Government Members should be incredibly proud of the state pension triple lock. It has transformed the state pension landscape for retired people—no more derisory 75p pension increases, as we saw when Labour was in government—and it has become a key part of the defences that we have built around pensioners to protect them from poverty. Does my right hon. Friend agree that the triple lock that we put in place was never designed for a set of fiscal events of the kind that we have been through over the last 18 months? The difficult decision that she has come to is the right one. When I talk to pensioners in my constituency and elsewhere about the difficult challenges that we face, they understand that. We just need to explain it clearly and with compassion.

Dr Coffey
My right hon. Friend is right that the triple lock policy was never anticipated for these extraordinary times. He will know that, as a former Secretary of State. The Lib Dem Pensions Minister, who served a five-year term, has also publicly said again today, as well as recently, that it was simply not designed for this sort of situation. I believe that the pensioners in our country are wise people. They will recognise that a statistical anomaly is not the basis for the uplift this year. Some people will of course be keen to encourage more people to take up pension credit. We estimate that only three in four of the people who could get the benefit are taking it up, in terms of the income guarantee, and we will continue to encourage people to do so. Nevertheless, this is a sensible approach and I thank my right hon. Friend for his support.

David Linden (Glasgow East) (SNP)
I, too, thank the Secretary of State for advance sight of her statement. Today’s bonanza of manifesto commitments being broken is like nothing we have ever seen before. I do not think I have seen this many U-turns in one day since I sat my driving test back in 2007. Not only have the Tories hiked national insurance, but now they are waging war on pensioners’ incomes by watering down the triple lock.

Despite all of today’s spin and smoke and mirrors, let us be clear what the Secretary of State’s announcement means for pensioners all across these islands. It is a clear violation of the contract offered to voters by a Tory Prime Minister who says one thing yet does another after he gets a whopping majority in Parliament. The state pension is by far the largest source of income for UK pensioners and the triple lock has maintained this throughout the pandemic, but we know that pensioner poverty is on the rise and the UK’s state pension is already the lowest in Europe. Today’s announcement demonstrates that there is no prospect of closing that gap with a Westminster Tory Government that Scotland did not vote for and has not voted for since the 1950s.

Pensioners in independent countries comparable to Scotland’s size or smaller receive a much higher proportion of the average working wage than UK pensioners. Today’s statement provides yet more clear blue water between an uncaring, austerity-obsessed Government in London and the prospect of a fully empowered independent Scottish Parliament that will ensure dignity and fairness in retirement. Given that Scottish pensioners clearly cannot trust the British Government, will the British Government now devolve powers relating to the state pension to Scotland’s Parliament, or is it easier for Scotland to just vote for independence and end pensioner poverty from London once and for all?

Dr Coffey
The hon. Gentleman may want to speak to his Cabinet Secretary because, at the moment, the Scottish Government are not using the powers that have already been devolved. I am conscious that they intend to but it is taking quite a lot longer. One of the reasons given by them, reasonably, is the impact of covid. However, he may wish to take this up with his colleagues in Holyrood.

I am conscious of the concerns about pensioner poverty. As I mentioned, we have seen a reduction, with about 200,000 fewer pensioners in absolute poverty before and after housing costs than over a decade ago. We want to maintain that. It might be informative to the House if I mention that material deprivation, one of the other measures of poverty, is at an all-time low, with 6% of pensioners considered materially deprived. The overall trend of pensioners living in poverty has seen a dramatic fall in recent decades. That started off with the Conservative Government and then continued with the Labour Government. We have seen that halve since 1990. However, I assure the hon. Gentleman that this measure is for one year only. That will be on the face of the Bill, and I am confident that that will not be amended.

Nigel Mills (Amber Valley) (Con)
Will the Secretary of State confirm that this is a one-year change and that she is not taking the various suggestions to scrap the triple lock completely, so it will be restored from next year? Secondly, does she believe that when we have put this rise through, the pension will realistically have roughly kept pace with the rise in earnings over the three-year period from before the start of the pandemic, or does she think that the rise will end up being a bit less than earnings on a real basis for the average worker around the country?

Dr Coffey
It would probably not be wise for me to go down that route, because we are still trying to estimate the likely uplifts in the different metrics. We will not actually use the figures until later in the year, but because of how the machinery of benefit upratings works, we need to be in a position to trigger it in November. Given my hon. Friend’s position on the Work and Pensions Committee, he may wish to ask that question a little later once we have some more detailed analysis in that regard, if that is okay.

Madam Deputy Speaker (Dame Rosie Winterton)
I call the Chair of the Select Committee.

Stephen Timms (East Ham) (Lab)
Is it still the Secretary of State’s view that it is important that the level of the basic state pension keeps track with earnings over time, as the coalition pension reforms assumed? If so, will it not require some further adjustment after these two exceptional years? Given that pensioner poverty was starting to increase before the pandemic, after a long period in which, as she said, that did not happen, what will her Department do to increase the currently very low take-up of pension credit?

Dr Coffey
In response to the first part of the right hon. Gentleman’s question, the legislation is there regarding the earnings link and we are maintaining that. We will be doing further analysis to understand what proportion of median earnings the pension will be, but I have no plans to change aspects of it. We think it is a sensible approach that we have taken to redress the balance, which had moved away.

Forgive me, but I have forgotten the second part of the right hon. Gentleman’s question. [Hon. Members: “Pension credit.”] Okay. The thing about pension credit is that it is split in two: the income guarantee and the savings credit. As I said to the House, our estimate is that 75% of people we think could be eligible take up the income side of pension credit, but the savings side has a much lower take-up. That is because sometimes when people do the calculation, it may be just 1p or 2p a week and they may not think it worth while to do the whole application. However, even with the savings credit side of pension credit come things like the free TV licence and access to other benefits, so we encourage people to take it up. With the income side, we estimate that three in four eligible pensioners are taking it up.

John Redwood (Wokingham) (Con)
Will the Secretary of State promise to publish, at the point when she makes her final determination of the proposed increase, a three-year smoothed average or some other suitable computation so that we can see that the spirit of the promise has been kept, even if the letter could not be because of the strange gyrations of the earnings figure? I think that people would be reassured if they felt that over the longer period we had met that requirement.

Dr Coffey
I cannot give that commitment to my right hon. Friend today, because I do not know exactly what it involves, so I will take his request away and consider it. I want to emphasise that overall we have seen a variety of increases over the past decade owing to the triple lock policy. I am confident, as I have flagged already, that we have seen a substantial increase in pensioner income as a result of that policy thus far.

Christine Jardine (Edinburgh West) (LD)
First, may I congratulate the Government on quite an afternoon? One afternoon, two statements, two broken promises—even for this Government, that is quite an achievement.

Despite all the problems that we have heard about, the triple lock was designed to protect pensioners, 2 million of whom live in poverty in this country, from the days when all they could expect was a 75p increase. Will the Secretary of State clarify two things? First, she said in her statement that the earnings link was set aside last year because of earnings falling by one percentage point. My understanding of the triple lock was that it would always mean the higher of 2.5% inflation or earnings, so would the percentage not have been 2.5% anyway? Secondly, would she be prepared to put it in writing, in legislation, that this is only for one year, so that pensioners do not feel that they have been asked to take the word of a Government whose word is not worth the paper it is written on?

Dr Coffey
The one year will be set out in the Bill, which I expect to be published tomorrow. As I have said, Steve Webb—the former Lib Dem pensions Minister, who probably knows more about pensions than any other member of the Liberal Democrat party—has been very public about the fact that this is a pragmatic approach, in effect, and it is not what this was designed for. I also point out that, when I made a similar statement last year, the hon. Member for North East Fife (Wendy Chamberlain), who usually speaks on DWP matters for the Liberal Democrats, asked about what would happen next year and whether we should anticipate that something like this approach might be needed again. That was a fair question, but it was important that we took things one year at a time because we did not know the future impact.

As I have already articulated to the hon. Member for Edinburgh West (Christine Jardine), this will be for one year only. The setting aside of the earnings link is because earnings are built into the Pensions Act. If we had not changed the law last year, we would not have been allowed by law to have increased the state pension at all; it would have been frozen in cash terms. Just as last year we set aside the earnings link to allow the uprating and ensure that state pensions were not frozen, this year we are setting it aside to correct for the fact that we have a statistical anomaly.

Steve Double (St Austell and Newquay) (Con)
It is quite clear that this is one of a number of very difficult decisions that we are having to make, and I think most reasonable people understand the reason: the pandemic and its impact on our economy. We do not do this lightly—we do it with a heavy heart—but it is the responsible thing to do. I have actually had emails from constituents who are pensioners, saying that they should not get an 8% increase this year, because they understand that these are very unique circumstances.

I am grateful that the Secretary of State has confirmed that this will be a one-year change. Will she also lay out what the Government have in place to support the lowest-paid and poorest pensioners at this time?

Dr Coffey
Before I answer my hon. Friend’s question, I need to correct part of my last answer: the earnings link is not in the Pensions Act, but in the Social Security Administration Act 1992, so apologies for that.

My hon. Friend is right. I am conscious that we want to help our pensioners at this difficult time. I have already referred to some of the benefits that may be available for people to take up where there is a pension already. We have done a significant campaign in the past year to improve take-up of pension credit and we will continue to signpost people accordingly to take advantage of the benefits that are available to some of our poorest pensioners.

Andrew Gwynne (Denton and Reddish) (Lab)
There is no glossing over this announcement. The suspension of the triple lock will come as a blow to many pensioners in Denton and Reddish—it is a broken promise from this Government.

I know that the prime reason for this statement was the uprating announcement, but it was badged as a pensions update. May I express my dismay that the Secretary of State has not taken the opportunity to respond to the ombudsman’s finding of maladministration in respect of the 1950s-born women’s pensions issue? When will she comment on that?

Dr Coffey
The hon. Gentleman may not be aware of how the Parliamentary and Health Service Ombudsman works in this inquiry specifically. The inquiry is happening in a staged process; we are not expected to give a response, because the process is not yet over. Unusually, the ombudsman has chosen to publish part of the judgment thus far, and there are further stages to come. The hon. Gentleman might want to read carefully the statement that was made, because he should be aware that the period of maladministration is linked to the years between 2005 and 2007, when the Labour Government were in power.

Clive Efford (Eltham) (Lab)
We have become used to the Government’s breaking of manifesto pledges, for instance on overseas aid and a border in the Irish sea, but today we have had two in one day, which is pretty remarkable. First, we heard the Prime Minister announce that he would break his pledge not to increase national insurance—which was not just in the manifesto, but something he had specifically singled out and pledged not to do—and now we have heard about the breaking of the triple lock, which was put in place by the last Labour Government and which played a significant part in reducing pensioner poverty.

We have heard from the Secretary of State that the Department is doing some work to advertise pension credit and encourage uptake, but we did not really hear from her any specifics, or any urgency, about the need to deal with the under-claiming of pension credit. So will she give us some more details about what she is intending to do?

Dr Coffey
As I have already pointed out, in terms of income guarantee, three in four of the people we have estimated may be eligible are taking up the approach. Ultimately, it is for people to apply for this extra benefit.

Relative to earnings, the state pension is now the highest that it has been in 33 years, so the policy that we have undertaken has been well and truly honoured. I believe that, because this constitutes a statistical anomaly, it is not an appropriate way in which to be using our public finances. I am very conscious that pensioners will expect us to be taking a sensible approach to sustaining the public finances, and a statistical anomaly is not one of the approaches that I believe they would accept.

Joanna Cherry (Edinburgh South West) (SNP)
May I press the Secretary of State on the point raised by the hon. Member for Denton and Reddish (Andrew Gwynne) about the women born in the 1950s, who have paid national insurance contributions for at least 40 years? Many are having to continue working through ill health or else face financial hardship or claim benefits, and now they face higher national insurance contributions.

Regardless of which party is responsible for the maladministration that occurred, the Parliamentary and Health Service Ombudsman has found that there was maladministration. Perhaps more important, at the time of the last general election, many Tory MPs made promises to the WASPI women which have yet to be fulfilled. What I would like to hear from the Secretary of State today is whether she can give them any hope for the future—any hope that she will revisit the issue of compensation.

Dr Coffey
I appreciate that this is a statement about the uprating, but let me just remind the hon. and learned Lady of the situation relating to the change in state pension age. It was voted through by Parliament in 1995, and there have been changes in the last decade. The Supreme Court made a ruling. We have been through the cases, and the right of Parliament to set the pension age has been upheld, so we will not be reviewing anything to do with the state pension age in response to the WASPI campaign.

Mike Amesbury (Weaver Vale) (Lab)
Given that the Secretary of State and every other Tory MP stood on a manifesto commitment not to increase national insurance contributions and hit the lowest paid—whom people gladly applauded every Thursday some months ago—and also affirmed the retention of the triple lock, how on earth can the people of Weaver Vale and people across Britain trust a word that the Secretary of State or any Members on those Government Benches utter in this place?

Dr Coffey
I think that the people of this country are very wise. I think that they will have seen the £407 billion package provided by this Government to support taxpayers. We are doing our best to protect lives and livelihoods, and I am absolutely convinced that our pensioners will not want to statistical anomaly to be the basis of a pension uplift when they recognise the challenges that this country has faced and what it has been through. I strongly believe that we are doing the right thing, and I hope that it will gain the support of the House when we present the legislation.