Margaret Ferrier (Rutherglen and Hamilton West) (Ind) I beg to
move, That the Bill be now read the Third time. As I said on Second
Reading, the Bill will help occupational pension schemes correct a
basic issue of men and women being treated differently in
contracted-out defined benefit occupational pension schemes because
of the impact of having a guaranteed minimum pension, or GMP. It
will help pension schemes to meet their legal obligations and
ensure that people do...Request free
trial
(Rutherglen and Hamilton
West) (Ind)
I beg to move, That the Bill be now read the Third time.
As I said on Second Reading, the Bill will help occupational
pension schemes correct a basic issue of men and women being
treated differently in contracted-out defined benefit
occupational pension schemes because of the impact of having a
guaranteed minimum pension, or GMP. It will help pension schemes
to meet their legal obligations and ensure that people do not
receive less pension income than they would have done had they
been the opposite sex. In other words, it will help schemes to
correct a situation that is fundamentally unfair.
I am proud to have brought the Bill before the House. I was
delighted to hear the Under-Secretary of State for Work and
Pensions, the hon. Member for Hexham () announce on Second Reading that the Government
would support it. The support that the Bill has attracted from
across the House is testament to both its importance and its
essential simplicity. It makes a few changes to pensions
legislation that will help occupational pension schemes to
resolve a long-term issue of unequal treatment.
The pensions industry has itself been asking for the measures in
this Bill, and as a result of those measures, schemes will be
better able to use the GMP conversion process to correct for the
differences in pension outcomes for men and women that have
arisen as a result of GMPs. It is very pleasing that hon. Members
from across the House have recognised and responded to this
need.
For the benefit of those who were not present for the previous
stages of this Bill, I will give a short recap of its background
and purpose. GMPs are the minimum pension that certain
occupational pension schemes must provide to their members.
Occupational pension schemes that were contracted out of the
additional state pension on a salary-related basis between April
1978 and April 1997 are required to pay their members GMPs as a
floor that the occupational pension cannot fall below. The
intention was that when reaching the age at which GMPs become
payable, the amount of GMP that a member of a contracted-out
scheme would have accrued would be broadly similar in value to
the additional state pension they would have received if they had
not been contracted out. Rather than paying a higher rate of
national insurance contributions to build up rights to additional
state pension, members of salary-related contracted-out schemes
built up rights to a GMP.
However, the way that GMPs were accrued by people means that they
differ for men and women, due to historical differences of
treatment in the pensions system based on people’s sex. People
with the same employment history can therefore have different
amounts of GMP depending on whether they are a man or a woman,
even if they do exactly the same job for the same length of time
at the same salary. Both men and women can lose out on pension
income in retirement as a result of their sex: it is not as
simple as one sex losing out consistently over the other. I have
discussed this issue in this House several times now, and I still
find it difficult to believe that people can lose out on even a
small amount of pension income purely because of these
differences.
Fortunately, successive UK Governments have made clear for over
three decades that occupational pension schemes need to equalise
pensions accrued since then to correct for these effects of GMPs.
The High Court confirmed in 2018 that occupational pension
schemes must equalise pensions accrued since 17 May 1990 to
address the effects of those differences. Occupational pension
schemes are therefore required to undertake a process known as
GMP equalisation, correcting people’s overall pensions to ensure
that they are not lower than they would have been had the person
been of the opposite sex. That is why the Department for Work and
Pensions published a suggested methodology based on the overall
value of the pension, which relies on the process of converting
GMPs to normal scheme benefits. It is elements of this process
that the Bill before us addresses.
Unfortunately, correcting people’s pensions in this way is
proving a very slow process. There are a number of ways in which
the task of GMP equalisation could be approached. One way, for
example, would be to look at the pension in each year and compare
what a man and a woman would have received, and pay the higher of
the two. The problem with this approach is that it would result
in members getting more overall than either a man or a woman
would have received before the equalisation process. This would
have been prohibitively expensive for schemes, and would in
itself be unfair.
The DWP, working with the pensions industry, proposed a
methodology based on the overall value of the pension, set out in
guidance for pension schemes to use. This methodology involved
converting the GMP into normal scheme benefits using the existing
legislative framework. The industry agrees with that approach,
but is worried that the current legislation that supports the
conversion process has some gaps that the industry believes will
leave it exposed to legal risk or potential accusations that it
has not equalised correctly.
For example, we need to clarify the way in which survivor
benefits are treated in the conversion legislation. The industry
has pointed out that the legal requirements for survivor benefits
when GMPs are converted are not clear enough. Survivor benefits
are the benefits paid out to a scheme member’s widow, widower, or
surviving civil partner when the member dies. Schemes need legal
certainty and a clear framework before they can move forward with
this process. This Bill seeks to provide that essential certainty
to schemes.
(Ynys Môn) (Con)
In the last 10 years since it was introduced, the automatic
enrolment scheme has enabled 4,000 of my constituents on Ynys Môn
to establish a pension. I congratulate the hon. Member on this
important Bill. Does she agree that it addresses uncertainties in
the current legislation and removes the risk of
misapplication?
I thank the hon. Member for her intervention and I absolutely
agree. This Bill is set to remove those uncertainties so that
these occupational schemes can get on with the equalisation
process that they have always known they should be carrying out
anyway.
The Bill removes the text in the Pension Schemes Act 1993 that
sets out what survivor benefits following GMP conversion must
look like, and replaces it with a power to set out those
conditions in regulations. When this provision was discussed in
Committee, I asked the Under-Secretary of State for Work and
Pensions, the hon. Member for Hexham () to confirm that the Government would consult on the
content of those regulations. I am pleased to say that he agreed
to that.
Before converting GMPs, pension schemes are required to get the
consent of the sponsoring employer that funds the scheme, which
might look to be reasonable, considering that the sponsoring
employer has invested a lot of money to ensure that scheme
members receive a decent retirement income. Unfortunately, it is
not that straightforward, because current legislation does not
account for all possible situations, such as where the original
sponsoring employer is no longer in business. Again, the Bill
removes the requirement for employer consent in the Pension
Schemes Act 1993 and replaces it with a power to set out in
regulations the details of the relevant persons who must consent
to the conversion. I am again pleased to say that the Minister
confirmed in Committee that the Government would also consult on
the content of those regulations.
Finally, the Bill removes the requirement that pension schemes
have to notify Her Majesty’s Revenue and Customs when they carry
out a GMP conversion exercise. In Committee, the hon. Member for
Reading East () very reasonably asked what
checks would be in place if HMRC no longer had to be notified
that people’s GMPs have been converted into other scheme
benefits. I would like to reassure the hon. Member that the
removal of the requirement that a scheme must notify HMRC if it
converts GMP rights into other rights was requested by HMRC. The
notification requirement was not a check by HMRC on whether an
individual scheme had carried out a GMP conversion correctly.
Responsibility for the accuracy of the conversion lies with the
pension scheme’s trustees, and they must take advice on certain
matters from the scheme actuary.
The requirement to notify HMRC if a conversion has been carried
out is simply a legacy of the time when members of occupational
pension schemes paid a lower rate of national insurance if they
were contracted out. Because both the employer and the scheme
members were paying lower national insurance contributions, HMRC
used to need to keep detailed records of all contracted-out
schemes. However, when contracting out ended for all occupational
pension schemes in April 2016, with the introduction of the new
state pension, employers and members no longer paid a lower level
of national insurance. HMRC therefore no longer needs to be
notified.
As this information is no longer required by HMRC, from 2019 it
has said to schemes that it no longer requires them to notify it
if GMP conversion has been carried out. However, because it is
still a requirement of the Pension Schemes Act 1993, schemes
should normally still submit such information to HMRC, despite
its having no use or need for it. As I said, it costs schemes
time and money to notify HMRC, it costs HMRC time and money to
process the notifications, and there is no need beyond the
current requirement in the 1993 Act for any of this time and
money to be spent.
I reiterate to the House that the Bill does not impose any new
costs or requirements on occupational pension schemes or their
sponsoring employers. As I said, affected schemes have known that
they need to equalise pensions for the effect of GMP for many
years, and they should have been planning for equalisation. The
Bill will simply help pension schemes that decide to use GMP
conversion to do what they need to do to ensure payments are
fair. I have engaged positively with representatives from the
pensions industry, who have long called for these changes and
welcome the Bill’s provisions. I am extremely pleased and proud
that my Bill will help schemes that want to use GMP conversion to
correct for the effects of this issue, and I am delighted by the
cross-party support I have received so far and again today.
1.05pm
(Broxtowe) (Con)
I congratulate the hon. Member for Rutherglen and Hamilton West
() on bringing forward this
Bill and I thank her for allowing me to participate in her
debate.
Pensions are integral to our society; they are a means whereby
individuals can reap the benefits of their hard work throughout
their life, in old age. When someone reaches an age where they
are no longer earning, they need an income to survive, and this
is where a pension kicks in. It is a payment that, we hope,
allows a retired individual to have economic freedom. It is a
point in our lives we should all be looking forward to. People
often fall into the trap of thinking that they are able to save
enough money to comfortably live when they are no longer earning.
Unfortunately, a lot of the time they do not save enough to enjoy
the standard of living they hoped for in retirement.
A state pension is a great starting point but if, like me, they
want to enjoy the luxuries of old age, they would need to think
about investing in a pension scheme. It is a long-term savings
plan with additional benefits. There are many benefits of pension
schemes such as tax relief, contributions made by the employer
and tax-free lump sums when the person retires. If they pay
contributions into a pension scheme, some of the money that they
would have had to pay the Government in tax is in fact paid into
the pension instead. The employer may match or pay more than the
person contributes to the pension scheme. That is money that they
would not have gained had they put their money into a savings
account. Finally, they will usually be able to take up to a
quarter of their pension savings as a tax-free sum.
Having expressed the importance of pensions, it is integral that
both men and women can benefit from them equally. That is why I
am very pleased that hon. Lady has brought this Bill to the
House. It is recognised that there were disparities between
pensions on the basis of sex, as a result of differences in
retirement age. As she mentioned, a GMP is a pension that a
workplace normally provides, and it applies only to people who
contracted out of the additional state pension scheme. A GMP is
usually the same, if not more, than the additional state pension
had the person not contracted out of it. Previous legislation
required GMPs to be determined on an unequal basis. A woman’s GMP
is normally accrued at a greater rate than that of a man, to
ensure that there is recognition of a woman’s working life being
five years shorter than that of a man.
It is important to understand the terms “revaluation” and
“indexation”. Revaluation is an increase in the value of
someone’s pension before they start drawing it, whereas
indexation is the rise in value of their pension while they draw
it. The Government have set a rate of revaluation that schemes
can use at 3.5% and there is a minimum indexation rate of 3%.
Therefore, some pension schemes’ revaluation rate is higher than
their indexation rate. Women used to have an earlier retirement
age, and therefore they were getting indexation while men were
receiving revaluation. In this instance, a woman would usually
get a higher pension rate until they started claiming their
pension, which would remove their revaluation rise and replace it
with an indexation rise, whereas a male would be entitled to a
revaluation rate for a further five years until their rate, too,
was switched to an indexation rate.
Schemes are required to remedy that through equalisation, but it
has never been clear how to go about that. The Bill seeks to
clarify that. The current situation is the perfect example of de
facto change but not necessarily de jure change. The Bill
clarifies that the legislation is to remedy the disparity as it
applies to survivors as well as earners. That is important,
because the sad reality is that it is common for individuals to
become widowed and it is vital that the surviving spouse can
claim the disparity for which the deceased spouse was
eligible.
The Bill provides a power to set out in regulations the
conditions that must be met in relation to the survivor’s
benefits, making it clearer and easier for survivors to claim the
remedy. It provides for a power to set out in regulations detail
about who must consent to the conversion, giving further
clarification on what is needed to claim the remedy. Finally, it
will remove the requirement to notify HMRC. I am told that HMRC
needs to be notified but may not be doing anything with that
information. It therefore makes sense to remove that bit of red
tape which, in practice, makes no material difference.
My constituents in Broxtowe will benefit from the Bill, which
will allow them remedy on the disparity to which they are
entitled. That will be achieved by removing red tape around
pension regulation and providing further clarity. Through that,
we will ensure that more individuals understand the logistics of
their pensions. It should not be necessary to be an expert in
finance to understand the rights and responsibilities that come
with pensions, and I hope that these changes will go some way
towards beginning to make that happen. I congratulate the hon.
Member for Rutherglen and Hamilton West () on introducing the
Bill.
1.11pm
(East Surrey) (Con)
This is the second time in a week that we have seen important
changes to regulation in insurance and pensions that will have a
meaningful impact on the country. Last week, we reformed Solvency
II, which will unlock billions of pounds of investment, and now
we have this Bill, which is a long-overdue step towards equality
between the sexes in occupational pensions. I firmly congratulate
the hon. Member for Rutherglen and Hamilton West () and my good friend the
indomitable pensions Minister on this smart and thoughtful
Bill.
1.12pm
(Hastings and Rye)
(Con)
I congratulate the hon. Member for Rutherglen and Hamilton West
() on successfully bringing
forward this well-considered Bill and for so excellently and
comprehensively explaining why we need it.
When the Equal Pay Act gained Royal Assent on 29 May 1970, the
House took an all-important step towards ensuring the equal
treatment of the sexes in the workplace. It also sent a broader
message about the United Kingdom’s societal values. Since the
Act’s commencement in 1975, even greater strides have been taken
towards ensuring gender equality. However, as I am sure
colleagues agree, much work remains to be done to that end.
As lawmakers, we in this House all have a responsibility to
strive continuously towards the goal of gender equality through
legislation, whether modest, substantial or otherwise, and the
Bill can rightly be seen as a means of doing that. Specifically,
it will right a historical oversight by making crucial
clarifications in relation to guaranteed minimum pensions
equalisation and pension schemes.
Madam Deputy Speaker, you can see that I am holding a wonderful
speech that I have criss-crossed out because I do not think I
need to go through all of that detail—we also have other people
who wish to speak and other Bills to consider. However, proposals
and methodology brought in during 2016 and 2017 should be secured
in relevant regulations, including the positive impact that they
would have on the equality of outcome for the sexes. These
concerns must be properly addressed in legislation, and that is
what the Bill rightly seeks to do. It has also been welcomed by
leaders across industry as covering key areas where clarification
is most needed, which will make the important process of
equalising benefits using GMP conversion easier.
Bearing that positive reception from industry in mind, and given
the broader message that it sends about the importance of the
equality of the sexes in legislative matters both significant and
modest, I strongly welcome the Bill and offer it my wholehearted
support.
1.15pm
(Darlington) (Con)
It is a privilege to follow my hon. Friend the Member for
Hastings and Rye ().
Let me begin by congratulating my friend the hon. Member for
Rutherglen and Hamilton West (). I know only too well
what a privilege it is to be successful in the ballot, and I
congratulate her on guiding this Bill through its legislative
journey. It is commendable that it deals with such an important
issue, and I am pleased to be able to speak about it today.
I am also delighted that the Bill extends to England, Wales and
Scotland, and that Northern Ireland has asked to be covered by it
as well. That is another great benefit for our United Kingdom.
There were, at the final count in 2015, about 8 million people
across the United Kingdom with contracted-out memberships, and
the Bill has the potential to benefit those 8 million people. I
cannot imagine a reason why anyone in the House would not be in
favour of that.
The Bill relates specifically to the issue of guaranteed minimum
pensions, but pensions have been on the agenda in the House on a
number of occasions in recent weeks. I was pleased to speak in a
recent Westminster Hall debate hosted by my hon. Friend the
Member for Grantham and Stamford (), and my hon. Friend the
Member for North West Durham (Mr Holden) is leading a sterling
campaign to extend auto-enrolment to many more people, which
would be a fantastic way to level up throughout our United
Kingdom and ensure that trillions more go into our pension pots,
thus ensuring that the poorest in society have a more secure
future. I would welcome the Minister’s comments on that, as I
know he is a champion for pensioners. I also know that he would
like an opportunity, when he winds up the debate, to highlight
the £1.8 billion-worth of unclaimed pension credit pots out
there, which could serve as vital assistance to pensioners in our
constituencies. But let me return to the specific issue of the
Bill, as opposed to wider pension benefits.
This Bill will make the process of equalising with the use of
guaranteed minimum pensions easier, and it is worthy of the
support of all of us in the House. I look forward to seeing it
pass its Third Reading today, and congratulate the hon. Member
for Rutherglen and Hamilton West once again on her efforts.
1.18pm
(Meriden) (Con)
I will keep my remarks brief, because I know that there are many
good speeches still to come. Let me first refer the House to my
entry in the Register of Members’ Financial Interests: I am a
practising chartered accountant, and also the chair of the
all-party parliamentary group on small and micro business.
I thank the hon. Member for Rutherglen and Hamilton West () for introducing an
excellent Bill which will achieve a great deal. As a practising
accountant who had to live through the introduction of
auto-enrolment, I have a love-hate relationship with it, and with
pensions, although of course I see the fantastic benefit that
they bring. Recent figures show that in my constituency alone,
more than 22,000 employees in 1,830 businesses across Meriden
have automatically enrolled. That scheme is a great achievement,
providing security and a pot of money for people to rely on when
they retire. Hopefully they will look back at us for many decades
to come, and thank us for taking the measures that we have
taken.
Speaking as the chair of the APPG, I hope the Minister will
assure me that, as pension changes occur—I am sure he has already
envisaged them—there will be consultation with businesses,
because small and micro businesses often feel that they are not
part of the conversation. That said, when auto-enrolment was
introduced, the SME sector was quite relieved by the
consultations that took place. That also showed that the
Government can introduce good legislation with good IT systems
behind it, as we have also seen recently with the furlough
scheme, in respect of which I was involved in getting my clients
on with real-time information.
The Bill is excellent and is what I call an equaliser Bill, quite
rightly bringing women on a par with men. There are many other
things to achieve on that journey but I wholeheartedly support
this legislation. I congratulate the hon. Member for Rutherglen
and Hamilton West on her cross-party thinking. As we have seen in
recent week, great things can be achieved when the House comes
together in unity. I thank her and the Minister for all their
work.
1.20pm
(Westminster North) (Lab)
I congratulate the hon. Member for Rutherglen and Hamilton West
() on introducing the Bill,
which the Opposition are pleased to support, as we were at
previous stages. As the hon. Lady and others have said, it will
help occupational pension schemes to correct the basic issue of
men and women being treated differently in those schemes because
of the impact of a guaranteed minimum pension. It will also help
pension schemes to ensure that people do not receive less pension
income than they would have received had they been of the
opposite sex. As the hon. Lady and others have said, the
legislation has been welcomed throughout the industry and there
is broad consensus that it is the right thing to do.
We should do all we can to help the pensions industry to fulfil
what is now its legal duty to deliver guaranteed minimum pension
equalisation, which includes supporting the Bill. In Committee,
my hon. Friend the Member for Reading East () made clear our support for the
Bill while making some general points and asking questions about
the Government’s approach to communications in respect of this
legislation and pensions more generally. He gently pointed out
that the Government do not have an unsullied record when it comes
to communication and he wanted to know a bit more about the
Minister’s plans in that regard. I think the Minister was going
to write to him but am not sure whether that has happened;
perhaps the Minister could say a couple of words about the
Government’s plans to ensure the effective communication of the
message.
I reinforce our view that there must be a commitment in the Bill
to a full and timely consultation with experts, the industry and
others before the introduction of regulations. That consultation
should address the conditions that must be met in respect of
survivors’ benefits and the details about who must consent to the
conversion. We asked in Committee what kind of instrument will be
used to introduce the regulations and sought reassurance that
parliamentarians will be able adequately to scrutinise the
changes. We also asked about the requirement to notify HMRC,
about which we have now heard more, which has helpfully clarified
that point.
On the wider issues of gender inequality, GMP equalisation is
only one way in which imbalances between men’s and women’s
pensions need to be addressed. We need reassurance that the
Government will commit to continuing to ensure that all aspects
of gender inequality in pensions are looked at, because we know
that the pensions gender gap is around double the pay gap and
that small changes at the early stages of somebody’s pension
career can have large repercussions.
In summary, we support the efforts in the Bill to tidy the
legislation and make it easier for schemes to convert guaranteed
minimum pension rights into ordinary scheme benefits. The
Minister may wish to address the few important issues to be
resolved, but they certainly do not distract from the Bill’s
overall value and we look forward to it passing swiftly through
its final stages.
1.23pm
The Parliamentary Under-Secretary of State for Work and Pensions
()
The Government propose to transform United Kingdom pensions. We
are making them safer, better and greener and the Bill is a
further way forward. I am grateful to the hon. Member for
Rutherglen and Hamilton West () for introducing the Bill
and for the support of the official Opposition and other
political parties.
Let me briefly address the three points raised by the hon. Member
for Westminster North (Ms Buck) on behalf of Her Majesty’s
Opposition. I assure her that there will be full consultation on
the legislation. There will also be broad communication, but I
will write to her on that point and place a copy of the letter in
the Commons Library and the House of Lords Library so that all
peers and Members can see it.
In respect of gender inequality, the hon. Lady will be aware that
successive Governments have concluded that the way ahead on that
is automatic enrolment—that is the greatest change. There is no
doubt that automatic enrolment has transformed saving in this
country. For example, in terms of workplace pensions, women were
at less than 40% in 2012 and are now at more than 80%, and young
people aged between 22 and 29 were at less than 40% and are now
at 80%.
(North West Durham)
(Con)
I agree with the Minister and welcome the Bill from the hon.
Member for Rutherglen and Hamilton West (). It is a great Bill and
part of the reforms to pensions that the Government are making.
As the Minister mentioned auto-enrolment, can he enlighten me on
the Government’s position on my Bill, which is scheduled for
later today, on expanding auto-enrolment to under-22s and
part-time workers, particularly women as he just mentioned?
I will deal with that point, because it is relevant to this Bill
and to the consideration of the House later. As my hon. Friend
will understand, we are in the latter part of this parliamentary
Session. It is the end of February and the Queen’s Speech will
come, in all probability—obviously I cannot commit, but it is
usually—on the second Wednesday in May, so the House has a
relatively limited period of time.
The hon. Lady’s Bill had its Second Reading in November. It
required a Committee stage in the House of Commons, then it had
to come back for Report and Third Reading. It has not even gone
to the other place for consideration. It will only just get under
the line, although I am sure that the other place will be keen to
accept it. The reality is that there is no real way for my hon.
Friend’s Bill to get through this House and the House of Lords in
the time allowed, and that is the requirement of private Members’
Bills of the nature of his and all others, to be fair.
I can confirm, however, that the Government remain committed to
the 2017 automatic enrolment review. It remains the case that we
will, in the fullness of time, bring forward or support
legislation to take the matter forward. My hon. Friend will have
to bear with me. He and I have had ample conversations. I am so
pleased that he is my neighbour—a great improvement on the
previous one. He is a doughty campaigner for his constituents and
he is right to make this particular case.
I thank my hon. Friends the Members for East Surrey (), for Broxtowe (), for Hastings and Rye
(), for Darlington () and for Meriden () who all supported the Bill
and spoke extremely well and eloquently about these matters. I
will not repeat my entire Second Reading speech, which lasted
for, I think, nearly an hour, and of which I know all hon.
Members enjoyed every word.
The greatest hits of pensions are often underrated in my
experience, but the points that I made then should be repeated as
if I were to speak for the next hour. We are correcting a
simplification that was brought in by the last days of Mr
Callaghan’s Labour Government in 1978. It is an utterly vital
piece of legislation that addresses everything from survivor
benefits to reforms in relation to HMRC and the need to get
proper equalisation. To be utterly clear, all parties will
benefit from this and there is no loser by reason of the
Bill.
It is absolutely to the credit of the hon. Member for Rutherglen
and Hamilton West that she has successfully brought the Bill
forward on a cross-party basis and navigated its passage. She
should be very proud of her work. I am delighted to restate that
the Government support the Bill. We continue to support it in
this House and will support it in the House of Lords. I wish it
every success as it travels on to another place.
1.29pm
With the leave of the House, I thank the Minister for his support
today and throughout each stage of the Bill. I also thank all
hon. Members who have spoken and who have intervened on Third
Reading including the hon. Members for Ynys Môn (), for Broxtowe (), for East Surrey (), for Hastings and Rye
(), for Darlington () and for Meriden ().
I also take the opportunity to thank the team at the DWP for all
their assistance throughout to get to this stage and for their
expertise in helping me to understand more of what I was talking
about. It has been a privilege to have the opportunity to take a
private Member’s Bill through the House, and I encourage all hon.
Members to enter the ballot when it comes round again. A private
Member’s Bill slot is highly sought after, and it has been a
great experience. I look forward to watching the Bill pass
through the other place and into law, and I greatly look forward
to seeing some of my constituents, and constituents across the
UK, finally receive the equalised pension income to which they
have been entitled for service since 1990.
Question put and agreed to.
Bill accordingly read the Third time and passed.
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