Pensions Bill

Public Bill Committee, 27 June 2013.

Examination of Witnesses

Martin Caton (Labour, Gower)

Welcome to the Committee. We will now hear evidence from the Pensions Policy Institute, the Confederation of British Industry and Which? Before calling the first Member to ask a question, I remind the Committee that questions should be limited to matters within the scope of the Bill, and that we must stick to the timings in the programme motion that the Committee has agreed. I hope I do not have to interrupt questions or answers mid-sentence, but I shall do so if need be.

Members of the Committee should declare any interest before the start of each panel to which that interest is relevant. For the record, will our witnesses please introduce themselves to the Committee?

Martin Caton (Labour, Gower)

Thank you very much. The first question comes from Andrew Selous.

Andrew Selous (Conservative, South West Bedfordshire)

How closely do the Bill’s provisions match your expectations of what a viable reformed state pension system should ideally look like?

Andrew Selous (Conservative, South West Bedfordshire)

Are you encouraged that 97% of McDonald’s workers have stayed within auto-enrolment? That would suggest a positive, enthusiastic take-up.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I want to ask the Pensions Policy Institute a question. People are obviously interested in gainers and losers, and the Department has obviously published the right answer, but others have published analysis. The Institute for Fiscal Studies has been loosely quoted as saying that most people would be worse off under the single tier. Clearly, there is a certain tension around that soundbite. From your independent standpoint, what is your assessment of the balance?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

My understanding is that the Government are taking away the state second pension and ploughing those resources into a flat-rate state pension. Would it be fair to describe the flat-rate state pension as a capped state pension, since you can no longer save additionally into S2P?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

It is capped?

Martin Caton (Labour, Gower)

We now move on to the ending of contracting out.

Heather Wheeler (Conservative, South Derbyshire)

I think one of you already mentioned that you have thoughts on whether the revised implementation date of April 2016 for the single-tier state pension will give employers and pension schemes sufficient time to make the necessary adjustments. Would you like to spread a bit more joy on that?

Heather Wheeler (Conservative, South Derbyshire)

Anyone else, or do you basically agree? Just nod.

Heather Wheeler (Conservative, South Derbyshire)

That is marvellous.

You alluded to contracting out issues. On the question of whether there is anything to add, are you satisfied with the provisions in the Bill that would allow employers to amend pension scheme rules to take account of the ending of contracting out—the statutory override?

Steve Webb (Liberal Democrat, Thornbury and Yate)

When we had the GMB in earlier this week, I put to it the employer’s perspective, so symmetry demands that I put to you the union perspective. The workers we are talking about were made clear pension promises in law and by Ministers. They were told that their pensions were as they would be until they retired. Do you not think it undermines the pension system if Governments make pension promises and then break them?

Martin Caton (Labour, Gower)

Thank you. We will now move on to eligibility for the single-tier state pension.

Mark Reckless (Conservative, Rochester and Strood)

On the requirement to contribute for 35 years to get a full pension, and for 10 to get any at all, do you think that is fair, and do you have particular concerns for groups that may find that a detriment?

Mark Reckless (Conservative, Rochester and Strood)

Does anyone else have anything to add on this issue?

Mark Reckless (Conservative, Rochester and Strood)

Do you think the protections and transitional arrangements for inherited and derived rights are sufficient?

Mark Reckless (Conservative, Rochester and Strood)

Neil, Dominic: do you agree that a reasonable balance is being struck in the Bill?

Martin Caton (Labour, Gower)

We will now look at the interaction with means-tested benefits. Andrew Griffiths.

Andrew Griffiths (Conservative, Burton)

Gentlemen, are you satisfied, with regard to means-tested pensioner benefits, that the provisions in the Bill will ensure that those who are affected by the abolition of the savings credit will benefit from the single-tier pension? Could you give us an overview of whether you are satisfied with how means-tested pensioner benefits will be affected by the changes?

Andrew Griffiths (Conservative, Burton)

Chris, you said that a small number of people would be affected. Have you been able to identify who they are likely to be?

Andrew Griffiths (Conservative, Burton)

Do you have any views about how the complexity will be affected from a pensions perspective, in terms of applying for things?

Martin Caton (Labour, Gower)

We will now turn to provisions for the self-employed.

Andrew Selous (Conservative, South West Bedfordshire)

The Bill is quite generous towards the self-employed. I would like to know your views on the level of national insurance that will be required of the self-employed. Some have suggested that it might be right to ask the self-employed to pay slightly more for the higher pension that they will receive. I would like to get your views on that area, please, starting with Mr Curry.

Andrew Selous (Conservative, South West Bedfordshire)

That is very helpful, thank you.

Andrew Selous (Conservative, South West Bedfordshire)

Does the CBI see this in any way as a pro-enterprise measure? There are 4.2 million self-employed people in this country, and they are quite important to our economy.

Andrew Selous (Conservative, South West Bedfordshire)

That was an important last point; thank you.

Martin Caton (Labour, Gower)

Our next question is on the state pension age. Christopher Pincher.

Christopher Pincher (Conservative, Tamworth)

Mr Carberry, you spoke earlier about the impact on businesses of the timetabling change adjustments, but I suppose my question is focused more towards Mr Curry. I want to ask you about further increases in the state pension age and particularly about the increase from the age of 66 to 67 between 2026 and 2028 being eight years earlier than in existing legislation. Do you think that that gives people sufficient time to make their own personal adjustments?

Christopher Pincher (Conservative, Tamworth)

Okay. Broadly, the lead time of, as it turns out, more than 10 years is acceptable, but do you think that there are any specific groups of future pensioners who will find the adjustment more difficult than others and, if you have identified such groups, what proportion of the mass of pensioners do they constitute?

Martin Caton (Labour, Gower)

We will now focus on private pensions.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Dominic, what is your view of the private pension provisions in the Bill?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Just to take up that point, you make very clearly and powerfully the point that there are additional reserve powers in the Bill, but the Bill does not specify what will happen in the case of the charges. Is that correct?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Does the Bill give the Minister the power to deal with deferred member penalties?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Can we move on to “pot follows member” or, more widely, how one goes about automatically transferring stranded pension pots? Does Which? think there should be a limit on the size of stranded pots that should be transferred? If so, why? More widely, I believe you have put on the record that Which? has strong concerns about the Government’s preferred option of “pot follows member.”

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

If we have a system of “pot follows member,” given that the automatic enrolment providers such as the National Employment Savings Trust, the People’s Pension and Now deal with employees who often change job, is there a big issue that their investment structures will have to have assets in a liquid form?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Your point is that there is no system in place for “pot follows member” as things stand?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

You, Dominic, mentioned deferred member penalties. It strikes me that it is conceivable in the “pot follows member” system that, unless the Government take a decision to deal with deferred member penalties, one could be transferred into a scheme that practices deferred member penalties from a scheme that does not.

Martin Caton (Labour, Gower)

Thank you, Dominic. The next question is on short service refunds.

Heather Wheeler (Conservative, South Derbyshire)

Clause 32 removes the facility to refund pension contributions to employees who leave a scheme after a short period and also for the employer’s contributions to be retained within the scheme. Do you regard this change as potentially detrimental to employers?

Martin Caton (Labour, Gower)

We are coming very near to our time limit now. Hopefully, we can get one more question in from Gregg McClymont on automatic transfers.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I raised with Dominic the issue of automatic transfers and the powers in the Bill more widely. Can I ask anyone who wants to take the question about clause 34 specifically? As I understand it, clause 34 gives the Secretary of State wide powers to exempt employers from auto-enrolment. Dominic, has Which? looked at that clause and does it have any concerns about the fact that it is conceivable under that power that a Secretary of State could exempt any employer under any circumstance from auto-enrolment?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Is it too widely drawn?

Martin Caton (Labour, Gower)

That brings us to the end of the time allotted for the Committee to ask questions of the witnesses. I thank you very much on behalf of the Committee for your evidence.

We will now hear oral evidence from the 700,000 Group.

Martin Caton (Labour, Gower)

I welcome you to our Committee. I appreciate that you are perhaps not as used to appearing in this sort of forum as some of our other witnesses. Hopefully, you have already seen that it is not the Spanish inquisition. The reason why we want to hear from you is so that we can learn from the evidence you can provide, so I hope that you will feel able to react. You have also requested the chance to make a brief statement at the beginning, which I have agreed to. Will you do that now before we move on to the questions?

Andrew Selous (Conservative, South West Bedfordshire)

Thank you for your opening statement. In general, what are your concerns about the impact of the single-tier state pension? You have obviously covered some of them in your statement, but can you just set out why you feel so strongly about this?

You touched briefly on the changes that have already been made to pensions; we obviously have the triple-lock increases of pensions and of course the change to the age range came in under the previous Government as well. So some of those things are existing pensions policy, separate from this Bill. However, could you just set out more broadly why you feel you are not in a good place as far as this Bill is concerned?

Andrew Selous (Conservative, South West Bedfordshire)

If I can just take you back to the triple lock for one moment, obviously that is already in force. Last year, I think we had the largest ever weekly cash increase for pensioners. There was quite a high rate of pension increase. So there has been some benefit, and we always avoid, for instance, the 75p rise that we had in the past. The rise last year was more than £5 a week.

Andrew Selous (Conservative, South West Bedfordshire)

Sorry, I was talking about the weekly increase.

Andrew Selous (Conservative, South West Bedfordshire)

Yes. The previous year it was £5—

Andrew Selous (Conservative, South West Bedfordshire)

So the increase of this year is on top of that.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I am grateful to you for coming in. In a sense, I can understand the point you make: that you perceive that you are missing out on something that other people are getting, and clearly you are—you are missing out on the single tier, which on average would be about £6 a week more for the group of women in the group you were born in. So, although you contrast £110 with £144, the average experience of your group would be about £6 a week more.

Can I ask you to compare yourself with two other groups? You have compared yourself with a man born on the same day, who, as you say, gets single tier but has to wait a lot longer for it than you would have to. Can I ask you to compare yourself with two other groups—a fictional older sister and a fictional younger sister? Your fictional older sister, who was born in 1949, had to work—as you have just said—39 years for a full basic pension. You only have to work 30 years. Your fictional younger sister will not get a pension until she is 65 or 66; your group will get a pension at 61, 62 or 63. So, if we had received oral evidence from your fictional older sister and your fictional younger sister, would they have agreed with you that you are uniquely prejudiced against?

Steve Webb (Liberal Democrat, Thornbury and Yate)

The point is that lots of women did not get 39 years. Lots of women perhaps had 30 or fewer. So the reduction from 39 to 30 was a big boost to women’s state pensions, which you have benefited from but your fictional older sister did not. Is it not that each group comes one side of a line? Some things you have benefited from—such as 30 years—and some things you will not benefit from.

Steve Webb (Liberal Democrat, Thornbury and Yate)

So many of your younger sisters will—

Steve Webb (Liberal Democrat, Thornbury and Yate)

But they have to wait until they are 65 or 66, or eventually 67, for a pension.

Martin Caton (Labour, Gower)

Thank you. We now need to move on to the next subject, which is eligibility for the single-tier state pension.

Christopher Pincher (Conservative, Tamworth)

Thank you for giving up your time to come in. I want to ask some hypothetical questions about eligibility for the STP, not your particular circumstances. As you will know, the 35-year requirement for a full single-tier pension and a 10-year minimum qualifying rule are quite significant changes to what has recently gone before. You may have heard evidence from the Pensions Policy Institute—or you can read it shortly—saying that it will have pretty minimal effect on most people who qualify for the STP. Do you think there are any particular groups that will be fully eligible for the STP that will be disadvantaged by its introduction?

Christopher Pincher (Conservative, Tamworth)

I accept the point you make, but I think you will also agree that the current system is rather—

Christopher Pincher (Conservative, Tamworth)

Everyone seems to be having that problem today. I shall enunciate much more clearly, and hold my chin up as well.

There is an acceptance that the present arrangements are quite complex. Do you think that the STP will be a much more simple-to-understand set of arrangements?

Christopher Pincher (Conservative, Tamworth)

For those who have inherited or derived rights to a pension, do you think that the arrangements, particularly the transitional arrangements, are appropriate?

Christopher Pincher (Conservative, Tamworth)

I am sure that you have a view.

Do you have a view on the starting level for the STP. You may have heard or read Age UK’s evidence from Tuesday. It said that it would like to see a 5% uplift on the pension credit standard minimum guarantee, which is £145.40, so we are talking somewhere north of £150. Do you think that the Government’s starting figure is reasonable, or do you think that it should be higher?

Christopher Pincher (Conservative, Tamworth)

If the starting figure were to be significantly higher—north of £144, and north of £144 plus 5%—do you think that the end to means-testing would pay for that increase, or would the funding have to be found from elsewhere?

Martin Caton (Labour, Gower)

It is appropriate that we now move on to the interaction with means-tested benefits.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

The last time we discussed this issue, the pensions Minister put a figure of around £4 billion on the cost of bringing the 700,000 women into the new state pension. Do you recognise that figure, or do you have your own costing?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Is it the group’s view that a little of that billions of pounds of windfall to the Treasury every year should be used?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

There are 700,000 women and the calculation is that 70,000 in that group will be disadvantaged by an average of £6 a week. You started to explain that the average hides some of the bigger losses for some people. Can you say a little more about that?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Just to clarify, within the 700,000 there are 105,000 who do not have the option to defer, because they have stopped working or—

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

The view of the group is that for a significant section of the 700,000, buying back in is very difficult or impossible. They cannot do that and they cannot defer.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Finally, in your view, this problem of the cliff edge arises because the new state pension is going ahead in the midst of the equalisation of state pension age. Can you clarify that?

Martin Caton (Labour, Gower)

We are wandering away from what is actually in the Bill. We will now move on to state pension age.

Andrew Griffiths (Conservative, Burton)

Thank you, Catherine and Marion, for coming to give evidence today. Can we talk about the timetable for the pension age increases? Do you think the Bill gives people sufficient time to make arrangements? If not, how long do you think the time should be?

Andrew Griffiths (Conservative, Burton)

Looking at your situation, how much notice do you feel you should have been given? What would have been a fair amount of notice to give you, and women in your situation, to adapt?

Andrew Griffiths (Conservative, Burton)

If we are talking about the moment that the sword falls, as it were, you are saying that the cliff edge appears too early for your particular case, so you have not been able to adapt and change. If we move it from you, where should we move it to—how much further away should we move the cliff edge?

Andrew Griffiths (Conservative, Burton)

So what is your solution to it?

Andrew Griffiths (Conservative, Burton)

The Bill—indeed, the whole initiative—is supposed to be cost neutral. If we make changes to your particular case, what would be your solution to maintaining that cost-neutral scenario, so that it does not cost any more?

Martin Caton (Labour, Gower)

We are running out of time but I am going to try to squeeze in one more question on bereavement support.

Andrew Selous (Conservative, South West Bedfordshire)

I do not know whether you have focused on this part of the Bill, but there are changes to bereavement support. Do you have any comments on those changes? You may well be aware, but we are going to increase the lump sum from £2,000 to £5,000 for families with children and pay a monthly figure of £400 for a year. Is that an area of the Bill that you have focused on at all?

Martin Caton (Labour, Gower)

Order. I am afraid that effectively that brings us to the end of the time allotted to the Committee to question this panel. On behalf of the Committee, I thank you very much.

Anne Main (Conservative, St Albans)

Welcome to Mr Bryn Davies and Professor David Blake. We will now hear oral evidence from Union Pension Services and the Pensions Institute. Before calling the first Member to ask a question, I remind all Members that questions should be limited to matters within the scope of the Bill, and we must stick to the timings in the programme. I hope that I will not have to interrupt any of our witnesses mid-sentence. For the record, will the witnesses please introduce themselves to the Committee?

Andrew Selous (Conservative, South West Bedfordshire)

I would like to ask you both how you see the Bill’s provisions matching your expectations for a viable reformed state pension system, starting with Mr Davies.

Andrew Selous (Conservative, South West Bedfordshire)

That is helpful, thank you. Secondly, I would like to know your views on the eligibility criteria for the single-tier pension, in terms of the 10-year threshold and the 35 years required for the maximum claim.

Heather Wheeler (Conservative, South Derbyshire)

Which groups of employees are likely to be adversely affected by the ending of contracting out? Can you give us a bit of a flavour on that?

Heather Wheeler (Conservative, South Derbyshire)

Okay. Professor, do you have any thoughts? If you have any specifics, that would be helpful. Mr Davies did not give me any specifics.

Heather Wheeler (Conservative, South Derbyshire)

Perfectly fair. Mr Davies, what measures would you like to see put in place to ensure that employees in defined benefit pension schemes are protected? Do you have any thoughts on that?

Andrew Selous (Conservative, South West Bedfordshire)

Who would pay for that?

Andrew Selous (Conservative, South West Bedfordshire)

Who would pay and how?

Andrew Selous (Conservative, South West Bedfordshire)

So the employers would pay.

Christopher Pincher (Conservative, Tamworth)

Your answers to Mr Selous’s first question have teased out some answers to this already. The Bill requires that people will have to work 35 years for a full pension and a minimum of 10 years to receive a pension, and we all accept that those are major changes.

You may know that, in his evidence, Chris Curry from the Pensions Policy Institute said that the changes were not going to have any major impact because by the time STP is fully operational the vast majority of people will have accrued 30 to 35 years of qualifying payments. However, Mr Davies, you said that STP is a retrograde step. Why do you think that? Is it because you do not like it? Do you think there are other reasons why the step is retrograde? For example, is it going to disbenefit significant groups of people and, if so, who?

Christopher Pincher (Conservative, Tamworth)

Do you think specific groups of people will get lower benefits or that everybody will?

Christopher Pincher (Conservative, Tamworth)

By how much?

Christopher Pincher (Conservative, Tamworth)

Is it not meant to be cost-neutral?

Christopher Pincher (Conservative, Tamworth)

With respect to the protections offered to derived and inherited rights, do you think those protections are sufficient or that further work could be done, particularly on transitional arrangements?

Christopher Pincher (Conservative, Tamworth)

Does it not actually state that the single tier will be set above the pension credit standard minimum guarantee of £145.40, but it does not state exactly what it will be, so you are basing your figures on a starting proposition that you do not know.

Christopher Pincher (Conservative, Tamworth)

And given that that is a figure above which the House of Commons research paper states the STP will begin at, how can you—

Steve Webb (Liberal Democrat, Thornbury and Yate)

On that worked example, that person will on average draw a state pension for 25 years. Whereas Gill would have had an earnings-indexed basic pension of £107 and the rest would have been CPI’d, in our world she gets an earnings-indexed £144, so is it not the case that she gets a substantially more generous indexation in retirement?

Sheila Gilmore (Labour, Edinburgh East)

I was going to ask about the interrelation with means-tested benefits. Are you satisfied that the abolition of savings credit will be balanced by the benefits of a single-tier pension?

Sheila Gilmore (Labour, Edinburgh East)

Do you have any views on whether any groups of future pensioners will lose out not just on savings credit, but regarding the continuation of means-testing?

Sheila Gilmore (Labour, Edinburgh East)

Did you want to add anything?

Andrew Selous (Conservative, South West Bedfordshire)

May I ask you both your views on how the Bill treats the 4.2 million self-employed people in the United Kingdom?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

May I ask about the state pension? Do you believe that there are specific groups of workers who are likely to be disadvantaged by increases in the state pension age? We know of the social class and occupational issue so, in that particular context, are there any mitigating measures that you would like to propose?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

May I move on to the private pensions issue, on which I know you and the Pensions Institute at Cass have done a significant amount of work? Would you care to comment on either or both of the provisions in the Bill that give the Secretary of State powers in the private pension sphere and, more specifically, on the issue of the transfer of stranded pots?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

On the broader issue of the powers that the Bill confers on the Secretary of State, such as the power to cap charges, I believe that the Pensions Institute and yourself have done some work on that issue. Would you care to comment on that?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Do you have evidence from your research so far that high charges are a widespread problem? If so, is it a good thing that the Bill gives the Secretary of State the power to cap charges?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Does either of you have a view on NEST’s role as a potential aggregator?

Heather Wheeler (Conservative, South Derbyshire)

Let me take you on to short service refunds. Clause 32 removes the facility to refund pension contributions to employees who leave the scheme after a short period and for the employers’ contributions to be retained within the scheme. Do you regard that change as potentially detrimental for employers?

Andrew Griffiths (Conservative, Burton)

The evidence from Age UK and the unions expressed concern that people would be forced to leave a well-run scheme and put into a less well-run scheme as a result of auto-enrolment. Do you share that view? If so, do you have a solution?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

My sense of what you are saying, Professor Blake, is that scale will be critical. Is that a fair assumption?

Anne Main (Conservative, St Albans)

Order. That brings us to the end of the time allotted to the Committee to ask questions to these witnesses, who I thank very much on behalf of the Committee.

Examination of Witness

Anne Main (Conservative, St Albans)

Would you like to introduce yourself to the Committee?

Andrew Griffiths (Conservative, Burton)

Do you feel that the Bill’s provisions match your expectations of what you would like to see within a reformed pensions scheme?

Anne Main (Conservative, St Albans)

Thank you. You seem to have anticipated, in a very perceptive fashion, many of the questions that will come your way. Perhaps those who will tackle some of those sections might take them one at a time.

Christopher Pincher (Conservative, Tamworth)

One at a time. You will have heard earlier evidence about the eligibility to the STP and the requirement that someone works for 35 years to receive a full pension and that someone has to work for 10 years to receive any pension. Chris Curry from the Pensions Policy Institute seemed to suggest that that would present no major difficulty, because the vast majority of people will have accrued between 30 and 35 years by the time the pension is up and running. Mr Davies from Union Pension Services took a different view and cited the example of a 53-year-old lady called Gill, who he said would be worse off by something like £2.80 a week. Do you think that there will be any particular groups that will be dis-benefited by the eligibility criteria?

Christopher Pincher (Conservative, Tamworth)

Thank you for that. You have been clear about that example. It leads rather nicely into my second question, which is about derived and inherited benefits. Mr Carberry from the CBI said earlier that although there might be some issues with derived and inherited rights, given that people are building up pensions in their own right the impact will not be particularly significant. Do you agree with that?

Anne Main (Conservative, St Albans)

Thank you for that very full answer. I am conscious that there are about another 12 questions we have to get through, so if we can keep them compressed, that would be helpful.

Christopher Pincher (Conservative, Tamworth)

What about the starting level for the STP? Do you think it is at the correct level, or do you think it should be improved in some way? Age UK, for example, said that £145.40 plus 5% would be an appropriate starting level. What are your thoughts?

Sheila Gilmore (Labour, Edinburgh East)

I want to ask you about means-tested benefits. Are you satisfied that the abolition of savings credit will be balanced by the advantages of the single-tier pension?

Sheila Gilmore (Labour, Edinburgh East)

Do you think there are any groups of future pensioners who would lose out as a result of the change?

Andrew Selous (Conservative, South West Bedfordshire)

What is your view on how the self-employed are treated in the Bill? What is the level of fairness or generosity towards them as far as the Bill is concerned?

Mark Reckless (Conservative, Rochester and Strood)

Do you think that the timetable for further increases in the state pension age gives all groups sufficient time to respond and plan?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

May I ask about the Second Reading debate? We know that the whole thrust of state pension reform is to increase and encourage incentive to save. The Bill refers to private pensions, particularly in part 4. What is your view on the provisions in the Bill regarding auto-enrolment?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

You read my mind. I was just going to ask you about aggregators and the issue of small pots.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Can you think of any reason why there might be opposition to aggregators within some parts of industry?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

You do not think that you will get a solution from industry?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Which brings us nicely, in terms of aggregators, to the issue of NEST. Are you surprised that the Bill does not take on the issue of removing the NEST restrictions?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Why do you think that is so important?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Why do you think the restrictions on NEST remain in place?

Anne Main (Conservative, St Albans)

Thank you. We can always come back with supplementaries at the end if we have time. Mr Reckless?

Mark Reckless (Conservative, Rochester and Strood)

On that, you referred to these very small pots and I thought you suggested that the industry was resistant to losing management of them. Surely the very small pots are a big administrative cost, with very limited revenue from them.

Mark Reckless (Conservative, Rochester and Strood)

If I may, I will press you on that. Would that not leave NEST as an extraordinarily unwieldy, enormous and growing fund? If it just becomes a default fund and is taking such a large number of these small pots over time, will it not become unwieldy and difficult to manage?

Mark Reckless (Conservative, Rochester and Strood)

On contracting out, are there any particular groups of employees for whom you have a particular concern?

Mark Reckless (Conservative, Rochester and Strood)

You said that the public sector was getting a better deal than the private sector. Do you think it is sustainable for the public sector to get that deal? Will the schemes be able to continue in the way they have been reformed when employers have to find that extra 3.4% from April 2016?

Sheila Gilmore (Labour, Edinburgh East)

I want to ask you about the provisions for amending pension rules by employers. Do you have a view on that?

Sheila Gilmore (Labour, Edinburgh East)

That is okay.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I want to pick up on Mark’s question regarding scale and NEST. Many of the witnesses so far, in terms of the private sphere, have talked about the benefits of scale. It struck me when Mark was asking that question that schemes like the Ontario teachers’ scheme and the Calpers scheme have enormous amounts of money under management and seem to be very effective. Is that a fair comment?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Fewer than 10 members?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Sometimes, in response to that view, people would look to the energy market and say that that does not work effectively with its few big players. Is that an issue?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

We are talking about the scheme side, rather than the provider side, when we talk about scale.

Sheila Gilmore (Labour, Edinburgh East)

I want to follow up on something the Work and Pensions Committee picked up on: people who might have several different jobs under the lower earnings limit. I had a constituent who was in that position and she was quite angry that they were not put together. Did you say that you thought there was a way that could be addressed?

Anne Main (Conservative, St Albans)

If the Committee has no further questions, Baroness Hollis, we thank you very much for your time this afternoon.

Anne Main (Conservative, St Albans)

We now move on to the next witness, from the Department for Work and Pensions.

Anne Main (Conservative, St Albans)

For the record, may I ask you to introduce yourself please, Minister?

Andrew Selous (Conservative, South West Bedfordshire)

What main response to the Bill has the Department had from the public since the White Paper was published?

Christopher Pincher (Conservative, Tamworth)

Minister, you have sat and listened to the evidence and will have heard a range of views about the new arrangements for qualification for the single-tier pension, and about the new arrangements for inherited and derived rights. We heard from Bryn Davies about Gill, a 53-year-old lady, and how she might be less well off. Baroness Hollis spoke about service wives living overseas with children. What work has been done to identify which groups may be disbenefited by these changes? What are you doing to ensure that those disbenefits are not exceptional?

Christopher Pincher (Conservative, Tamworth)

Are you saying that you think that the system is sufficiently flexible to enable those particular creases in the proposals to be ironed out without legislation, or do you think there might need to be future changes to accommodate those concerns?

Sheila Gilmore (Labour, Edinburgh East)

That takes us neatly to means-testing. The abolition of savings credit can be seen as being balanced by the benefits of the single tier. Do you think that is fully the case?

Sheila Gilmore (Labour, Edinburgh East)

Are you satisfied by the extent to which means-testing will be eliminated? There will still be a substantial amount in all your future projections.

Sheila Gilmore (Labour, Edinburgh East)

How does that happen?

Heather Wheeler (Conservative, South Derbyshire)

We have heard a lot of evidence this afternoon, and the day before, Minister, about different groups that might be adversely affected. I wonder what steps you have taken to reassure yourself that the revised implementation data, particularly, for single tier allow the pension industry, pension schemes and employers sufficient time to adjust to all this.

Heather Wheeler (Conservative, South Derbyshire)

Okay. Just a final thing from me on this bit—a bit of an awkward one, really. Which employees are likely to be adversely affected by the ending of contracting out and, I suppose on a slightly more positive note, which groups will benefit?

Mark Reckless (Conservative, Rochester and Strood)

What about the self-employed: bringing them into the scope of the single-tier pension? Is the reason for that simply the desire for simplification or do you also think that the self-employed have been treated, to a degree at least, harshly in the past.

Mark Reckless (Conservative, Rochester and Strood)

Minister, when you have done your modellings and costings, looking at the various sensitivities and coming to your choice in the Bill, is that based on an equilibrium model or do you make any adjustment for likely changes in behaviour under the new system and the incentives that it gives?

Mark Reckless (Conservative, Rochester and Strood)

If more people decided to become self-employed partly because of the attraction of this reform, or a lot of public sector workers decided to work several years longer than they might so as to get the full single-tier pension, would that not potentially increase the cost of a reform that is intended to be cost neutral? Have those elements been fully priced in your model?

Andrew Griffiths (Conservative, Burton)

Steve, one of the key elements of the reforms is the system whereby there will be a review every six years of the state pension age. Earlier this afternoon we heard from Professor Blake, with his idea for a longevity committee—I have not heard that one before. How are you going to ensure that there is transparency in that decision-making process?

Andrew Griffiths (Conservative, Burton)

Do you think that prevents future Governments from running away from the problem?

Andrew Griffiths (Conservative, Burton)

This morning we heard from the industry about its need to see secondary legislation quickly. Will you tell us your plans to give the industry that information so that it can have some certainty?

Andrew Griffiths (Conservative, Burton)

Finally, there is the six-yearly review, but how long do you feel you then have to give people to allow them to make any amendments and changes to their personal situation?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Minister, you referred at the beginning of your evidence to how alive you are to the issue of significant and/or unfair losers. Could you say to the Committee a little about what groups, if any, do you think are significant or unfair losers from this reform, and more widely, who the losers are?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I take that answer to mean that you would not consider either the 700,000 Group within that to be significant or unfair losers, or indeed the evidence that we heard from the bereavement support network on Tuesday about the loss that bereaved families might face.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

And on the bereavement?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

My understanding of the evidence on Tuesday from the Childhood Bereavement Network and associated organisations is that 90% of those who claim bereavement support will get less under the new system than they would have under the old system. Is your argument that, once you include universal credit, it changes the situation?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

In what time frame are you operating that assumption? I know that on Tuesday the Childhood Bereavement Network was saying that it is up until the age you stop getting child benefit. My understanding of your argument in the back and forth on Tuesday was that the winners are those who claim for less than three years, and everyone who claims for more than three years will be a loser.

Sheila Gilmore (Labour, Edinburgh East)

Some people have raised the fact that, apparently, kinship carers get a longer period of adjustment, as it were. Although universal credit is available, for the most part it immediately plunges people, unless they have very young children, into quite a stern regime of looking for work.

Sheila Gilmore (Labour, Edinburgh East)

Do you think you have that balance right, given that the adjustment period is relatively short? With all due respect, the atmosphere within jobcentres is getting a lot tighter. They say, “You have to have your CV before you get any money,” and all the rest of it. That does not sound like a very flexible system for people.

Mark Reckless (Conservative, Rochester and Strood)

You have received quite a wide range of representations on small pots and automatic transfers. Have you heard anything that might be a clever solution that clearly improves on what is in the Bill? Are there downsides that outweigh the gains of the alternatives?

Heather Wheeler (Conservative, South Derbyshire)

We have heard a lot of evidence about short-service refunds. What are the implications for employers and pension schemes of the abolition of short-service refunds? Why did the Government decide that that was a necessary step to take?

Andrew Griffiths (Conservative, Burton)

Steve, we all know that pension regulation is already burdensome, complicated and complex. The Bill makes amendments to the pension protection arrangements and places additional responsibilities on the regulator. Could you tell us what your overall aims are in that respect and what you think are the benefits?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

With the Chair’s permission, I just want to take up a couple of issues that have partly been discussed but not elaborated on. First, Steve, on cost neutrality, we often hear it said that the Bill is cost-neutral, but my understanding is that upwards of £5 billion a year will flow to the Treasury in terms of increased national insurance contributions from 2016. Is the Bill cost-neutral?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Just to clarify for my own benefit, the new system costs the same as the old system, except that, under the new system, an extra £5 billion or so accrues to the Treasury every year. Is that correct?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Thank you for that. The second issue is healthy life expectancy, which Baroness Hollis raised. I was struck by her evidence on that, and I wondered what your view was.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

The dialogue you had with my colleague, Sheila Gilmore, about bereaved families ended with you saying the onus would be on the Government to make sure Jobcentre Plus acted in a compassionate or sensible way. What guarantee can you give this Bill Committee that that will happen?

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

Much as I admire the Minister, that does not necessarily reassure Opposition Members on the Committee.

My final point is on small pots. Steve, your defence of “pot follows member” is that people would default only if they did not exercise a choice, but do you not agree that the reason why auto-enrolment has such support across political parties is that it operates on the basis of inertia and an understanding that, historically, most people have not exercised their choice on pensions? Therefore, as a defence of “pot follows member”, hoping that people will have the chance not to default into a worse scheme is probably not the best basis for future policy.

Gregg McClymont (Labour, Cumbernauld, Kilsyth and Kirkintilloch East)

I take it from that that you agree that the ability to opt out is not necessarily part of the case for “pot follows member”.

Anne Main (Conservative, St Albans)

Thank you for that.

Andrew Griffiths (Conservative, Burton)

I was struck by the evidence from Professor Blake earlier. He was much more optimistic about the idea of pension pots in relation to which people would not be transferred from a good pot to a bad pot. He was much more optimistic about rules that could be brought in to ensure that charges were low, and were efficient and effective. What is your view of that evidence? What can we do to bring that sort of system into fruition?

Anne Main (Conservative, St Albans)

Do any other Members have a question for the Minister? There are no further questions. I thank the Minister for the time he has given to the panel today.