Margaret Ferrier (Rutherglen and Hamilton West) (Ind) I beg to
move, That the Bill be now read a Second time. First, I want to
congratulate the right hon. Member for North Somerset (Dr Fox) on
the progression of his Down Syndrome Bill, which I very much
support. My Bill makes changes to the legislation governing the way
occupational pension schemes can convert guaranteed minimum
pensions into other scheme benefits. The Bill is very technical
looking, but it is...Request free trial
(Rutherglen and Hamilton
West) (Ind)
I beg to move, That the Bill be now read a Second time.
First, I want to congratulate the right hon. Member for North
Somerset () on the progression of his Down Syndrome Bill, which I
very much support.
My Bill makes changes to the legislation governing the way
occupational pension schemes can convert guaranteed minimum
pensions into other scheme benefits. The Bill is very technical
looking, but it is extremely important. It will help occupational
pension schemes to correct a basic issue of men and women being
treated differently in those schemes because of the impact of
having a guaranteed minimum pension. It will help enable pension
schemes to ensure that people do not receive less pension income
than they would have received if they had been the opposite sex.
In other words, it will help schemes to correct a situation that
has been judged since 1990 to be fundamentally unfair.
Guaranteed minimum pensions, or GMPs, are the minimum pension
that certain occupational pension schemes have to provide to
their members. This applies to occupational pensions contracted
out of the additional state pension between April 1978 and April
1997. It ensures that members receive a broadly similar amount of
pension income in retirement as they would have received had they
not been contracted out.
However, guaranteed minimum pensions differ for men and women,
reflecting historical differences of treatment in the pension
systems based on sex. People with the same employment history can
have different amounts of guaranteed minimum pension depending on
whether are men or women, even if they do exactly the same job
for the same time at the same salary. It is not even as
straightforward as men getting higher guaranteed minimum pensions
than women; in fact, both men and women can lose out on pension
as a result of their sex.
Successive UK Governments have made it clear since 1990 that
occupational pension schemes need to equalise pensions to correct
for these effects of guaranteed minimum pensions. In 2018, a High
Court judgment confirmed that occupational pension schemes must
equalise pensions to address these differences. Speaking as
someone who has worked and built up occupational pensions of my
own, it seems wrong that people can lose out on even a small
amount of pension income purely because of these differences.
Occupational pension schemes are therefore required to do
something called equalisation—going back and correcting people’s
overall pension to ensure that it is not lower than it would have
been had the person been of the opposite sex.
(Gedling) (Con)
I thank the hon. Lady for bringing the Bill forward. She is
talking about the history of this technically complex issue,
which goes back to 1990. Does she agree that the changes
introduced by the Bill are well overdue and that, by bringing it
forward, we will get the change that we should have had a long
time ago?
The hon. Member is spot on; the change is well overdue. I will
come to that, and I am sure that the Minister will answer that
point too. I think the pension schemes have found some
difficulties; as I say, I will come to that.
It is important to be clear that no one will have money taken
away from them as a result of the Bill when pensions are
equalised. If it turns out that someone is entitled to more
guaranteed minimum pension than they would be entitled to if they
were the opposite sex, nothing happens; that advantage is not
taken away. The Bill seeks only to increase pension income for
those already losing out because of their sex due to the nuances
of having a guaranteed minimum pension. It is also important to
be clear that this is not about giving anyone extra pension that
they are not entitled to; it is simply about making sure that no
one loses out on pension income as a result of their sex.
If one person has a smaller guaranteed minimum pension than
another purely because the first person is male and the second
female, their overall pension entitlement needs to be corrected.
However, correcting people’s pensions in this way is proving a
very slow process, as the hon. Member for Gedling () said. The Department for Work
and Pensions, working with the pensions industry, tried to cut
through the complexity by offering a methodology, set out in
guidance, for pension schemes to use. The methodology involved
converting the guaranteed minimum pension into what I will call
normal scheme benefits, using existing legislation already on the
statute book.
The industry agrees that this is a sensible approach, but has
pointed out that the legislation supporting the conversion
process contains some uncertainties that it believes will expose
it to legal risk and potential accusations of not equalising
correctly. For example, the way survivor benefits are treated in
the conversion legislation needs to be clarified. The industry
has pointed out that legal requirements for survivor benefits
when guaranteed minimum pensions are converted are not
sufficiently clear. Survivor benefits are the benefits paid out
to a scheme member’s widow, widower or surviving civil partner
when the member passes away, and are therefore extremely
important.
Equalising someone’s pension to take account of the differences
that arise because they had a guaranteed minimum pension is, as I
have said, very important, but schemes need clarity and legal
certainty before they are able to proceed with this essential
process. That is what the measures in my Bill seek to provide.
Similarly, before converting guaranteed minimum pensions, pension
schemes are required to get the consent of the sponsoring
employer that finds the scheme. That sounds entirely reasonable,
since after all the sponsoring employer has invested a lot of
money in the scheme to ensure that its employees have a decent
retirement income.
Unfortunately, that is not as straightforward as we might expect
because the current legislation does not cover all situations,
such as where the original sponsoring employer is no longer in
business. As a result of this lack of clarity in the legislation,
some pension schemes have held off equalising for these effects
of guaranteed minimum pensions. This Bill will help with that by
rectifying those uncertainties and clarifying the legislation
that schemes will use if they follow the methodology set out in
the Department for Work and Pensions guidance.
I should make it clear to the House at this point that the Bill
does not impose any new costs or requirements on occupational
pension schemes or their sponsoring employers. Affected
occupational schemes have known that they need to equalise
pensions for the effect of guaranteed minimum pension for many
years and should have been planning accordingly. The Bill will
simply help pension schemes to do exactly what they need to do to
stop people losing out.
I have engaged with representatives from the pensions industry,
who welcome the provisions. The industry has long lobbied for the
clarifications in this Bill to be made. I should hope that all
here recognise the Under-Secretary of State for Work and
Pensions, the hon. Member for Hexham () sitting opposite me today; I am delighted to say
that the Government have decided to support my Bill. It is good
to be working with the Government to make things easier for
pension schemes.
(Berwickshire, Roxburgh and
Selkirk) (Con)
I congratulate the hon. Lady on bringing forward this Bill. She
is speaking extremely well on a very technical area of pensions
law. On the devolution point, she will know that Stormont has
agreed to deal with the same issue, which is devolved to
Stormont, through this Bill. Does she agree that that is a good
example of where this Parliament and the devolved Parliaments can
work together to achieve a desired positive outcome?
I thank the hon. Member; I am not sure I agree wholeheartedly
with all his intervention, but the Bill extends to England, Wales
and Scotland, and Northern Ireland, as he mentioned, has asked to
be covered by it as well. This particular Bill extends to the
whole UK and I am happy that it includes Scotland as well, unlike
the Bill of the right hon. Member for North Somerset, which only
covers England. As I said, it is good to be working with the
Government to make things easier for pension schemes in
fulfilling their obligations to their members and to ensure that
benefits are paid correctly to members of occupational pension
schemes.
I will not take up a lot of time, because the hon. Member for
Meriden () is looking to give his Bill
a Second Reading as well. But before I finish, there are quite a
number of people on the DWP team who I would like to thank as
they have helped me considerably: Narinder Clarke, Anna
Smith-Spark, , Katy Marcus, Maria Burgess
and David Brown. Of course I also thank my parliamentary
assistant Kim Glendenning, who has helped me considerably in
pulling all this together, the Pensions and Lifetime Savings
Association and the Minister.
12:14:00
(Dover) (Con)
I warmly thank the hon. Member for Rutherglen and Hamilton West
() for bringing this issue
to our attention today through the excellent proposals in her
Bill, and for her clear explanation of this very technical
matter, its impact on people and why it matters—particularly to
women in the workplace, but also to others who do not experience
equity and fairness. Her remarks brought to life the fact that
equal pay must also mean equal pensions, and that complexity in
this matter must be no excuse for not ending up with the right
result for people who are due their pensions.
There have been huge changes in pensions over recent
decades—certainly in almost every year of my working life—and it
is welcome that compulsory pensions are now part of employment
rights. However, because of those changes and people’s changing
work practices, which mean that they may be in and out of several
pension schemes within their working life, there needs to be even
greater focus on securing the best possible protection for any
changes to pension calculations before they become due. Buy-in
and buy-out schemes and other pensions management processes
feature more and more as companies experience increasing pressure
on their own accounts, and over their accountability for the
management of pensions.
I have a constituent who has an occupational pension, and he has
heroically battled with referrals to the pensions ombudsman and
the FCA for many years over a matter relating to the conversion
of a minimum pension floor. The pension had two elements: a
minimum guaranteed pension floor and an assessed projected
income, in the usual way of pensions. I recall when my
constituent first showed me his original pension statement, which
said, in absolutely clear and unequivocal words, that the pension
would not be less than a specified amount per year. Separately,
the same statement expressed the projected value of the pension.
Somewhat surprisingly, in my view, the Pensions Regulator has
found that, in essence, because that pension statement did not
use the word “guarantee”, the words “the pension will not be less
than x” did not represent a guaranteed pension amount. I ask the
hon. Lady and my hon. Friend the Minister to look again at the
definition of guaranteed minimum pensions, particularly in
schemes established before the Pension Schemes Act 1993.
I also made a referral to the FCA about mis-selling, and it said
that it did not have responsibility for pension buy-out
arrangements. It seems to me that we have made great strides in
stopping small-print explanations—such that anyone who looked at
the small print would have realised that even if the statement
said they would get a certain amount, that might change—and
mis-selling in many areas of financial services. There seems,
however, still to be a gap in pensions protection that leaves
individuals such as my constituent rightly angry and
disappointed. There can be nothing plainer, it seems to me, than
a formal statement saying “You will receive x a year”. That is
not a qualified statement, and we must not let people get away
with the small print.
My constituent was absolutely right to feel angry and
disappointed in this case, but it highlights a wider issue of
equity and fairness in relation to conversions from one scheme to
another, and other pension changes. There must be no possibility
of discrimination when it comes to converting such schemes, and
greater safeguards are vital in this regard. It is not allowed to
dock pay for work already done or to cut holiday or other
entitlements, and stronger protection may be required for pension
rights. The fact that these accrue in the future does not make
them any less important than what people are paid today.
I recognise that company schemes are set up over a long period of
time, and many set up a long time ago now need to be dealt with
differently. Where they are problematic for companies, some may
find themselves unable to operate without making substantial
changes to assessing how the pensions are dealt with. Recent
changes to the calculation and treatment of future pension
obligations in company accounts have created additional and
specific responsibilities, but also severe and significant
pressures. I hope that the Minister and the hon. Member for
Rutherglen and Hamilton West will agree that any such changes to
pension rights must have at their heart equity and fairness. It
is part of the basic corporate responsibility that we should and
do expect of companies operating all such schemes.
12:20:00
(Stourbridge) (Con)
As time is tight, I will keep this very short. I wanted to have
the opportunity to thank my friend the hon. Member for Rutherglen
and Hamilton West () for all the hard work
she has been doing. I welcome the Bill that she has put forward.
Experts welcome the Bill, which will clarify and streamline the
primary legislation on GMP conversion. It will make the whole
process of equalising using GMP conversion easier. For that
reason, I welcome the Bill and will be supporting it.
Madam Deputy Speaker ( )
My goodness, that was quick!
12:21:00
(Hastings and Rye)
(Con)
Today, I welcome the private Member’s Bill introduced by the hon.
Member for Rutherglen and Hamilton West (). It is very commendable.
On 29 May 1970, the Equal Pay Act gained Royal Assent. With its
passing, this House took an important and laudable step towards
ensuring the equal treatment of men and women in the workplace
and our society more generally. Since the Act’s passing and its
later commencement in 1975, even greater strides, both de facto
and de jure, have been taken towards gender equality, but as
colleagues will know, much work remains to be done to that end.
We all have responsibility as lawmakers to strive towards it
continuously, through pieces of legislation substantial, modest
or otherwise. The Bill can rightly be seen as a means to do that.
Specifically, it will help right a historical oversight by making
important clarifications in relation to pension schemes and
guaranteed minimum pensions.
The historical oversight has been explained comprehen- sively —I
will not go into that—but we see that it has its roots in the
state earnings-related pension scheme that was introduced in
April 1978, as well as the Pension Schemes Act 1993, which
required GMPs effectively to be calculated on a fairly unequal
and unfair basis. It has ultimately meant that the age at which
GMPs could be calculated and the rate at which benefits built up
were different for men and women. It is far from clear which sex
received the greater total benefit as a result of this
discrepancy, primarily as related advantages fluctuate over time.
Whether it is men or women who benefit, such equality cannot be
considered just.
There have been consultations over time about guaranteed minimum
pension schemes and how equalisation in occupation schemes should
be looked at. There was a consultation and proposal in 2012, and
another in 2016-17. Compared with the 2012 consultation and
methodology, the Department for Work and Pensions stated that
there was broad agreement that the newer method was a distinct
improvement and offered a relatively simple way to convert GMPs
into ordinary scheme benefits, thus ensuring equality across the
board and assisting the industry to deliver the change without
policies being excessively onerous. That development was welcome,
but concerns have continued to be raised by the industry that
existing legislation is unclear in some areas, including, for
example, that it fails to provide for circumstances in which the
scheme’s sponsoring employer no longer exists and therefore
cannot consent to a proposed conversion exercise as per the
methodology.
For the full benefits of the 2016-2017 proposal on methodology to
be secured in the relevant regulations, including the positive
results for equality of outcomes for the sexes, these concerns
must be properly addressed in legislation, and that is what the
Bill seeks to do. As I understand it, the Bill will make it clear
that the legislation applies to survivors as well as earners;
provide for a power to set out in the regulations the conditions
that must be met in relation to survivor’s benefit; provide for a
power to set out in regulations detail about who must consent to
the GMP conversion; and remove the requirement to notify and
inform HMRC.
The Bill has been welcomed by industry leaders for covering key
areas where clarification is most needed, which will in turn make
the important process of equalising benefits using GMP conversion
easier. With this positive impact on the industry in mind, and
given the broader message that it sends out—that the equality of
the sexes is important in all legislative matters, both
significant and modest—I welcome the Bill, which is worthy of
support from across the House.
12:26:00
(North West Durham)
(Con)
I pay tribute to the hon. Member for Rutherglen and Hamilton West
() for bringing this Bill
to the House. As she mentioned, it will introduce a well overdue
change. As hon. Members have reflected, given the passing of the
Equal Pay Act 1970 and the fact that this matter has been
highlighted as a major issue since 1990, it is not before
time.
The hon. Lady said in her opening speech that the current
situation seems wrong. Well, I think it definitely is wrong. I am
so glad that she has introduced this legislation, because the
subject of pensions is not talked about often enough in this
House. The impact that pensions can have on people’s long-term
prosperity is immense, especially in old age, and too many
constituents in places such as North West Durham really do feel
that there is a pensions divide.
Further to what the hon. Lady is doing today, I want to speak
more broadly to the Treasury Bench about pensions. The change
implemented through this Bill was recommended back in 1990.
Several years ago, the auto-enrolment review of 2017 recommended
that auto-enrolment be extended to 18 to 21-year-olds, as people
are currently auto-enrolled only after the age of 22. That change
would be hugely beneficial, particularly to constituents of mine,
who start work at 18 at a far higher rate than the national
average. Those 45 to 50 years of compound interest on four years
of extra auto-enrolment could make an enormous difference to
their income in later life.
Auto-enrolment schemes currently kick in only when someone is
earning over £6,000 or so a year in a job. Many of my
constituents, particularly women, have multiple jobs, and may
work only 10 hours a week in them.
The Parliamentary Under-Secretary of State for Work and Pensions
()
I am grateful to my hon. Friend for making that point. I will
answer in a bit more detail in my closing remarks, but let me say
that I endorse entirely his argument in favour of the 2017
auto-enrolment review, and the fact that expansion of automatic
enrolment will unquestionably assist those in low-income areas,
including those who have multiple jobs. With respect, it will be
a progressive and good thing to do, but I will address the point
more in my closing remarks.
Mr Holden
I thank the Minister for that intervention.
Some of the changes, particularly the lowering of the earnings
threshold, could be introduced in secondary legislation, but
primary legislation will be required to extend the auto-enrolment
to 18 to 21-year-olds; I should let the Minister know that I have
a date for a ten-minute rule Bill in the new year to do just
that.
I very much hope that the Government will look at lowering the
threshold. Low-paid women with multiple jobs in particular could
be missing out on many thousands of pounds going into their
pension pots. Low-paid women with multiple jobs in particular are
potentially missing out on many thousands of pounds going into
their pension pots due to issues around auto-enrolment. It is
another inequality in the system that, as the hon. Member for
Rutherglen and Hamilton West mentioned, tends to affect women
disproportionately.
I just want to clarify that the rules around guaranteed minimum
pensions are very complicated, so both men and women can lose out
if pensions are not equalised because of indexation and
revaluation. I am sure the Minister will cover that in his
closing speech, but it is about two people. Sometimes women can
have a higher pension and then the man will overtake it, or vice
versa, because of the different ages of retiral. I just wanted to
make it clear that both sexes can lose out.
Mr Holden
That is an incredibly important point. Both sexes can lose out
and that is another element with auto-enrolment. There will be
men in part-time work, maybe with caring responsibilities, who
will also be in a similar situation.
The Minister has been a real reformer and is reforming an awful
lot. I know there is a lot more to do. I encourage him to think
broadly and work with Members across the House to continue the
great reforming work he is doing. It has been great to see him
working with the hon. Member for Rutherglen and Hamilton West. I
hope to work with him in the future as I start to push for
further reforms.
12:31:00
(Gedling) (Con)
As legislators, we look at the proposed legislation before us
when we are preparing to speak in debates. As I was preparing to
speak in the previous debate, I picked up the Down Syndrome Bill
and, from the face of the Bill, was able to very quickly glean
what it was about and understand its general thrust. As I picked
up this Bill to prepare, however, I read that
“GMP conversion” means—
(i) the amendment of a scheme in relation to an
earner who was alive immediately before the
conversion date so that it no longer contains the
rules specified in sections 13(1)(a) and (b) and
17(1)”.
I am glad we have got that cleared up. So I congratulate the hon.
Member for Rutherglen and Hamilton West () on not only introducing
the Bill, but bringing it to life and explaining it in a way that
this pensions layman was able to understand. I feel that I have
made much more progress in the last half an hour than I have in
the last few days of trying to get to grips with the Bill.
As I understand it—as I say, I claim to be no expert in this
field—what we are seeing today is the end of a very long journey
towards equality which we should have addressed before now, but
better late than never. As I understand it, the old state pension
had a number of elements to it, including a contracted-out part
where one could obtain an occupational pension scheme that had a
guaranteed minimum pension. Because of the way that the
guaranteed minimum pension was calculated, there were various
inequalities, including differentiation on a person’s sex and age
as existed at that time. That has been corrected to some extent
following the 1990 court case—it is bizarre that it has taken so
long for us to get to this stage—but I understand that the
industry has a number of concerns that are still extant with the
existing legislation, including how conversion applies to
survivor benefits, the element that can be inherited by a
member’s widow. It does not provide for circumstances in which a
scheme’s sponsoring employer no longer exists and cannot consent
to a proposed conversion exercise, and also in terms of requiring
schemes to notify HMRC that they have carried out the conversion
exercise.
I understand that the Bill will
“Clarify that the legislation applies to survivors as well as
earners.
Provide for a power to set out in regulations the conditions that
must be met in
relation to survivors’ benefits.
Provide for a power to set out in regulations detail about who
must consent to the conversion.
Remove the requirement to notify HMRC.”
It is a technical piece of legislation, but it will, I hope,
bring us to the end of a long road. I congratulate the hon.
Member for Rutherglen and Hamilton West on introducing it and
explaining it so cogently to us laymen, and I look forward to
seeing it on the statute book very soon.
12:35:00
(Stalybridge and Hyde)
(Lab/Co-op)
I congratulate the hon. Member for Rutherglen and Hamilton West
() on presenting this Bill.
As the public probably know, Members have huge discretion in
respect of what legislation to choose when they are successful in
the private Members’ ballot, and I think everyone here today is
personally very grateful to the hon. Lady for using her success
in the ballot to propose these measures.
We face significant challenges in the world of pensions, whether
they relate to the viability of schemes, the future of
auto-enrolment—which was mentioned by the hon. Member for North
West Durham (Mr Holden)—the threat posed by scams or the recent
growth in pensioner poverty, which is a worrying trend. However,
while we invest our efforts to confront those challenges, it is
only right that, when possible, we seek to take the relatively
more straightforward steps that will help us to correct problems
in the pensions sector, and work with the pensions industry to
deliver the best possible outcomes for our constituents. That is
why, I am happy to say, we support the Bill in principle.
This is a sensible Bill, designed to streamline and clarify
legislation on converting guaranteed minimum pensions in order to
equalise benefits between men and women in accordance with the
Equalities Act 2010 and following the High Court judgment
relating to the Lloyds Banking Group schemes in 2018. The hon.
Member for Rutherglen and Hamilton West made a very good speech
outlining that case: it might sound technical to some, but I
think that she explained it very clearly.
I know from my conversations with representatives of the sector
that converting GMPs into other scheme benefits on a value basis
like this is the preferred way of addressing equalisation, rather
than the costly and often complex dual-records approaches.
However, we recognise that there are problems that have remained
unresolved since GMP conversion was first in legislation. As the
hon. Member for Rutherglen and Hamilton West explained, they
relate to the lack of clarity on whether the legislation applies
to survivors as well as earners, and the lack of provision for
circumstances in which the scheme’s sponsoring employer no longer
exists and is unable to consent to the conversion exercise. Her
Bill addresses those problems in a simple and practical manner,
and I have noted the support that it has received from the
pensions industry. The head of GMP equalisation at Lane Clark
& Peacock—a friend of many of us—has said that it will
“make the whole process of equalising benefits using GMP
conversion easier.”
The last Labour Government made clear their belief that we needed
to equalise GMPs, and the Bill is an important step towards
ensuring that everyone enjoys dignity and security in retirement.
We should be doing everything possible to help the pensions
industry to fulfil what are now its legal duties to deliver GMP
equalisation, and that includes supporting the Bill. I see no
reason why Members in any part of the House would not wish to see
these flaws addressed, and I sincerely hope that the Bill is able
to proceed to its Committee stage. I repeat our support for it,
and commend the hon. Member for Rutherglen and Hamilton West for
choosing to introduce it today.
12:38:00
The Parliamentary Under-Secretary of State for Work and Pensions
()
It is a privilege and an honour to address the House on behalf of
the Government, and to set out our position on this small but
very important Bill.
Let me first congratulate the hon. Member for Rutherglen and
Hamilton West () on her success in the
ballot, because without the ballot she could not have presented
any piece of legislation. It is important for people to
understand that. I also congratulate her on the massive
support—of which the hon. Member for Stalybridge and Hyde () spoke eloquently—that
she has managed to garner across the sector for a piece of
amending legislation to address a small, discrete but genuinely
important measure, and on the way in which she introduced the
debate. She is right, and the hon. Member for Gedling () is right: this is not simple
stuff. It is technical, but it matters tremendously. She set out,
with great eloquence and fairness, the background to the problem
and how her three-clause Bill will address it. She brought to the
attention of the House the need for schemes to make progress with
the equalisation of scheme benefits to take account of the
unequal effect of guaranteed minimum pensions. She set out why
this issue is of paramount importance and how the House can help
to clarify the legislation, and I can confirm that the Government
will support the Bill.
As we all know, there are 13 days a year on which we consider
private Members’ Bills. Some of those days are interesting, to
put it charitably, in that the Bills will not necessarily be
supported by the Government or even the Opposition on many
occasions. Points of great importance are raised but the Bills do
not go forward with the will of the House. However, that is not
like today. Today is a very special day, and I cannot overstate
the sense of genuine achievement that Members across the House
should feel about the progress of the Down Syndrome Bill. Anybody
who was in the Chamber to hear what was said will have been
utterly moved and taken away by the wisdom and significance of
the speeches and the differences that that Bill will make. We
have now come to a very different Bill, but it is no less
important.
I am now—I believe—on my fifth pensions Bill, Madam Deputy
Speaker. As a former Pensions Minister, you were one of the
architects of automatic enrolment, which my hon. Friend the
Member for North West Durham (Mr Holden) so eloquently—
Will the Minister give way?
Of course.
My hon. Friend said that he is on his fifth pensions Bill. Is it
right that pensioners are better off now than they were 10 or 15
years ago?
In a whole host of ways, the answer is yes. The state pension, by
reason of the triple lock, is now £2,050 higher than it was prior
to the introduction of the triple lock in 2010. There is
automatic enrolment, and it would be fair for me to give a quick
history of that because we have the esteemed former Minister in
the Chair. Automatic enrolment was conceived by the Labour
Government and the Turner commission. It was introduced by the
coalition Government in 2012. Without a shadow of doubt, it has
been utterly transformational. For example, 6,000 constituents of
my hon. Friend the Member for North West Durham are saving the 8%
thanks to the 1,580 employers in his constituency who support
that. He made a very telling point about the 2017 automatic
enrolment review, and given that he raised it—not for the first
time— I will finish this point on automatic enrolment and the
importance of this change before I go on to GMPs.
I am proud to say that the success of the provision now means
that 10.5 million employees have been automatically enrolled into
a workplace pension by more than 1.8 million employers. It was
specifically designed by the Labour Government and brought in by
various other Governments to help groups who historically have
been less likely to save, particularly women, low earners and
young people—this goes to the point made by my hon. Friend the
Member for Hastings and Rye (). It has helped many in
those groups to begin to save into a pension for the very first
time. Workplace pension participation among eligible employees
has grown to 88% overall compared with 55% in 2012. The
proportion for women and young earners was less than 40% in 2012;
it is now above 80%.
There is more that we can do, and we very much hope we will, and
we recognise that challenges remain. Our ambition, as my hon.
Friend the Member for North West Durham set out in relation to
the 2017 review of automatic enrolment, is to enable people to
save more and start saving earlier. Abolishing the lower earnings
limit for contributions and reducing the age for being
automatically enrolled to 18 in the mid-2020s will benefit
younger people, the low-paid and part-time workers as they will
receive contributions from their employer from the very first
pound earned. I want to stress that as a Government, we remain
utterly committed to those measures. I have been clear that the
implementation will be subject to the learnings that take place
from the 2018 and 2019 contribution increases. That is
significant and it is important that that is done.
Mr Holden
The Minister is being generous with his time and in his remarks
about me too. The Government have said that they will bring
forward legislation to make sure that that happens. Does he have
a timetable for that?
My hon. Friend tempts me to make commitments that I am unable to
make. The Government have said that they will introduce the
measure by the mid-2020s. It requires primary legislation and
there is no doubt that there have been issues in its introduction
because of the 2018 and 2019 increases. The impact of Brexit and
the pandemic also clearly makes it more complicated to introduce
such changes for employers.
It is still several years until the next general election,
perhaps as much as two and a half years. My hon. Friend will be
aware that the Government have to go through various processes to
bring forward future legislation, including a Queen’s Speech
setting out the Bills that will be brought forward in the third
and fourth Sessions. He makes an eloquent point, however, as he
always does—I assure the House that he is a massive improvement
on the previous occupant of North West Durham, my neighbouring
constituency—which I am certain will be heard not just on the
Treasury Bench by the assiduous Whip, who is noting down his
every word, but all the way in the Treasury, where I know he is
making the case.
The practical reality is that the Bill of the hon. Member for
Rutherglen and Hamilton West proposes a technical change. I will
try to set out the position, which genuinely dates back to the
1970s and the last days of the Callaghan Government. Guaranteed
minimum pensions were introduced to help employees to save
affordably for an income in retirement, which is clearly a great
concept. The state pension used to be made up of two parts: the
flat rate basic state pension and the earnings-related additional
state pension.
The flat rate state pension was simply funded through national
insurance and paid at the full rate to those with sufficient
qualifying years of NI contributions or pro rata for those with a
partial record. The earnings-related additional state pension,
also known as the state second pension or state earnings-related
pension scheme, was linked to a person’s earnings. National
insurance contributions were paid by an employee and their
employer and gave the employee the right to an additional
earnings-related state pension.
Many employers, however, were already offering their workers
company pension schemes, so many people were building up an
occupational pension and an earnings-related additional state
pension. That was rightly thought to be overly onerous and
potentially unaffordable for employers and employees. In effect,
it was seen as a double provision and immensely
overcomplicated.
To clarify the situation, the Callaghan Government introduced the
system of contracting out and the provision of guaranteed minimum
pensions in 1978. At that time, although I realise it may be hard
to believe after hearing the description in the opening speech,
that was considered a simplification. How they work is not
simple, but I will attempt to explain it to the House to put it
on the record, particularly for usage in Committee.
Employers who sponsored a salary related scheme were allowed to
contract out their occupational pension schemes from the
earnings-related additional state pension. Because employees in
contracted-out employment were taken out of the additional state
pension, the employer and pension scheme members paid lower
national insurance contributions. Salary related contracted-out
occupational pension schemes were required to take on the
responsibility for paying their members the GMP as part of the
occupational pension from the scheme.
The intention was that, on reaching retirement age, the amount of
guaranteed minimum pension that the individual member would have
built up would be broadly equivalent in value to the additional
state pension that they would have received. However, the
guaranteed minimum pension was literally that—a minimum.
Most employees would also have built up an occupational pension,
but the scheme pension could not be lower than the guaranteed
minimum. In addition, widows, widowers and surviving civil
partners of members with a GMP received valuable survivor benefit
rights—this goes to the point raised by several colleagues about
ongoing survivor rights. Some of the technical details are
complicated, but the crux of the idea is simple: rather than
paying additional NI to the state to build up additional state
pension, people built up a similar amount of occupational pension
through a workplace pension scheme. The workplace pension scheme
ultimately, of course, became automatic enrolment, as the Deputy
Speaker, the right hon. Member for Doncaster Central ( ), knows. The system ran in
this way from 1978 to 1997.
Although the basic idea was simple, the technical details were
extremely complex. I will not take the House through all the
complexities, but, for example, GMPs can be subject to both
revaluation and indexation. They are revalued before coming into
payment to ensure they are protected against inflation, but once
in payment any GMP accrued between 1988 and 1997 must also be
protected against inflation, through indexation. Although
revaluation and indexation are both intended to protect against
the effects of inflation, the rates of revaluation and indexation
are not the same, and, as the hon. Member for Rutherglen and
Hamilton West set out, the reality is that men and women with the
same employment history could receive different GMPs. That is
what we seek to address.
So the GMPs were abolished in 1997. The whole system of
contracting out was finally ended in 2016, with the introduction
by the Conservative Government of the new state pension. But of
course many of the people who worked between 1978 and 1997 still
have a right to a GMP. We are talking about a significant number
of our constituents—this is a very large figure. Some will
already be retired, but some are still working. There have been a
variety of court cases on this, which I am not going to go
through in copious detail, but the first key one was something
that has affected this House and all matters of state pensions
dramatically since 1990. I refer to the European Court of Justice
ruling in the case of Barber. It ruled that pensions were
deferred pay and, as such, must be treated and paid equally to
men and women. The Barber judgment was not specifically about
GMPs but it meant that the impact of the differing rules for men
and women had to be corrected. When we have come to a decision,
as we have in his House on multiple occasions, about the state
pension age correction exercise and the increases from 60 to 65
and 66, it can be traced back to the Barber judgment and the
equality legislation that followed thereafter.
The House has already heard that the ECJ subsequently made the
Allonby judgment, which enables schemes to use a scenario to work
out whether someone has lost out or not, rather than being
dependent on having a member of the opposite sex in the scheme to
compare against. The Government are clear that in light of the
Barber judgment, and subsequent decisions, including the Allonby
judgment, occupational pension schemes need to equalise pensions,
taking account of the effect of GMPs. Subsequently, the UK passed
the Equality Act 2010, which also requires equal treatment
between men and women for all pension accrued from the date of
the Barber judgment. As has been said on several occasions, the
Department for Work and Pensions has attempted, under successive
Governments, to try to fix this problem without primary
legislation. It is totally right that that there was a
consultation, following which guidance was published. However, as
the hon. Lady rightly set out in opening, it is simply not the
case that all schemes can proceed on the basis of the guidance
that has been prepared. The reality therefore is that schemes
need to equalise the amount of pension their members receive to
correct for the problems caused by the complex rules and the
differences in retirement income these rules produce. This
process is known as “equalisation”. How an occupational pension
scheme corrects members’ pensions is up to the individual scheme,
provided it is done properly. There are various methods of
equalising that occupational pension schemes can use. However,
the process can be very complicated and is specific to the
individual scheme, and there are a lot of schemes. Some schemes
have already felt very nervous and they have been concerned not
just by the costs and the complexity, but by the judicial process
that could follow and the perceived uncertainty about exactly how
to undertake the process and be sure that they have met their
legal obligations. As a result, as she set out, many schemes have
still not equalised for the effects of GMPs.
What the Bill does is key. It makes it clear how the conversion
legislation applies to people who are survivors, as well as to
the earners. It also gives the Government the ability to set out
in regulations the details of how survivor benefits will work for
surviving spouses or civil partners of people with guaranteed
minimum pensions. As my hon. Friend the Member for Berwickshire,
Roxburgh and Selkirk ()—who represents a constituency
across the Border from me that includes Jedburgh and
Galashiels—said, it is a piece of legislation that applies
throughout the United Kingdom, and clause 2 includes specific
regulations in relation to Northern Ireland that were requested
by the Stormont Government.
Clauses 1 and 2 both clearly state that converted schemes must
provide survivor benefits. One of the key purposes of the Bill is
to make it easier for pension schemes to know the right amount
that survivor benefit schemes using the conversion legislation
must pay. The Bill also gives the Government the ability to set
out in regulations details about who must consent to the
conversion of guaranteed minimum benefits. Finally, the Bill
removes the requirement to notify HMRC once a scheme has
converted its guaranteed minimum pensions.
I opened by saying that debates on private Members’ Bills can be
significant and serious days, and I genuinely appreciate the
contributions that we have heard from a variety of colleagues. I
thank my hon. Friend the Member for Stourbridge () for her enthusiastic but
pithy support, and my hon. Friend the Member for Hastings and Rye
for an eloquent speech that set out in great detail her grasp of
the issue. As always, my hon. Friend the Member for North West
Durham is never backwards in coming forward on so many different
issues, including his passion for automatic enrolment.
My hon. Friend the Member for Dover (Mrs Elphicke) raised a
number of points and spoke with great experience. I am not of the
view that this very specific Bill on very specific points would
address the individual problems that she raised regarding her
constituent, but I am happy for her to write to me about the
issue and I will give her a detailed reply to confirm whether it
is within the scope of the Bill. I suspect that it is not, but I
want to be absolutely sure when I reply to her, which I will do
prior to our entering Committee so that the House can be
clear.
I cannot stress what a wonderful campaigner and asset to the
House my hon. Friend the Member for Gedling is. He has made a
tremendous impact through the work that he has done. It is great
to see him here, and an honour and privilege to answer some of
his points.
The hon. Member for Stalybridge and Hyde and I have clashed
before—I think that this is our fourth Bill—but it is great that
he and the House are in full support of this one.
The Department for Work and Pensions is attempting to make
pensions safer, better and greener. We are doing a huge amount,
including: the Pension Schemes Act 2021, with collective defined
contributions, which will provide the third way of pensions; the
pensions dashboard, which will be like a banking app that brings
our pensions to our mobile phones, iPads and laptops, so that we
have total access and knowledge of what we have; the reforms and
support of defined benefit; action to prevent the investment
scams that we know are out there and are trying to stop; the huge
work that we are doing to develop on the environmental, social,
and governance reforms that we introduced after the 2017
elections; and putting pensions at the heart of climate change by
building on the work of COP26, and being the first country in the
world to introduce climate-related financial disclosure, giving
consumers—all our constituents —full understanding of what is
being invested in on their behalf through pensions.
With respect, although this is a smaller Bill than the 125
clauses of the Pension Schemes Bill that we took through the
House earlier this year, it affects a significant number of our
constituents and I am genuinely keen to progress it. I can
therefore confirm that it is with pleasure that I give the
Government’s backing to the hon. Member for Rutherglen and
Hamilton West, her Bill and the work that she has done. Excellent
points have been made in debate that I will discuss in more
detail in Committee. If I have missed any particular points, I
will endeavour to write to colleagues in the intervening period.
The Government support the Bill. We wish it well in Committee. I
want to take the time to thank the hon. Lady, because it is not
easy dealing with a highly technical and difficult Bill such as
this. She should be very proud of the way she ensured that she
got cross-party support and then introduced the Bill and outlined
its provisions with great eloquence. I thank her for all the work
that she has done.
13:00:00
I thank the Minister for his support in this important matter. He
touched on the ballot for private Members’ Bills. I was delighted
to be one of the successful 20; I am sure any Member who puts in
for the ballot is keen to come out as one of those 20. I am
grateful to all Members who have spoken today for their valuable
contributions: the hon. Members for Stourbridge (), for Hastings and Rye
(), for North West Durham (Mr
Holden), for Gedling (), for Dover (Mrs Elphicke),
for Stalybridge and Hyde () and for Berwickshire,
Roxburgh and Selkirk ().
Correcting this basic issue of men and women being treated
differently in these schemes because of the impact of having a
guaranteed minimum pension that affects their hard-earned pension
income is important. Although the Bill is small and technical, we
should not underestimate its value. It should help schemes to use
the guaranteed minimum pension conversion legislation to provide
equality for affected pension scheme members by bringing much
needed clarity for the industry that administers them. I am
heartened and grateful that there is clear cross-party agreement
on this issue, and I very much look forward to taking the Bill
through its remaining stages.
Question put and agreed to.
Bill accordingly read a Second time; to stand committed to a
Public Bill Committee (Standing Order No. 63).
|
