Pensions Bill

Public Bill Committee, 2 July 2013.

Martin Caton (Labour, Gower)

Before we begin, I have a few preliminary remarks. Members may, if they wish, remove their jackets during Committee meetings. Will all Members please ensure that all electronic devices are turned off or switched to silent mode during meetings? I say that with some embarrassment, because the only mobile phone that went off in our initial meetings was mine; I have left it in my office to avoid that happening again. Copies of memorandums that the Committee receives will be made available in the Committee Room.

Before we begin our line-by-line consideration, a brief reminder of procedure may be useful. The selection list for today’s sitting is available in the room, and shows how the amendments selected for debate have been grouped together. Amendments that are grouped together are generally on the same or a similar issue. A Member who has put their name to the lead amendment in the group is called first; other Members are then free to catch my eye to speak on the amendments in the group. A Member may speak more than once in a single debate.

At the end of the debate on a group of amendments, I will call the Member who moved the lead amendment again; before they sit down, they will need to indicate whether they wish to seek to withdraw the amendment or to seek a decision. If any Member wishes to press any other amendment in a group to a vote, they need to let me know. I will work on the assumption that the Government wish the Committee to reach a decision on all Government amendments. Please note that decisions on amendments do not take place in the order they are debated but in the order that they appear on the amendment paper. I will use my discretion to decide whether to allow a separate stand part debate on individual clauses and schedules following the debates on the relevant amendments.

As a general rule, I and my fellow Chair do not intend to call starred amendments that have not been tabled with adequate notice. The required notice period in Public Bill Committees is three working days. Therefore amendments should be tabled by the rise of the House on Monday for consideration on Thursday, and by the rise of the House on Thursday for consideration on the following Tuesday.

I hope that has been helpful. We now begin our line-by-line consideration of the Bill.

Clause 1 - State pension

Martin Caton (Labour, Gower)

With this it will be convenient to discuss new clause 1—Review in relation to women born on or after 6 April 1951—

‘The Government shall conduct a review to determine whether all women born on or after 6 April 1951 should be included within the scope of the new state pension arrangements established by this Act. Such a review shall be conducted within six months of Royal Assent of this Act and a report thereof laid before Parliament.’.

I remind Members that even if new clause 1 is pressed to a vote, it will not be voted on until the end of proceedings, together with other new clauses.

Steve Webb (Liberal Democrat, Thornbury and Yate)

Good morning to you, Mr Caton; we are all looking forward to many happy hours talking pensions in your presence.

I will start on a note of consensus, in the form of a word of thanks to the official Opposition. In my 16 years in the House I cannot remember another occasion on which so few amendments have been tabled to the substantive part of a Bill. When I saw the list of amendments for today and realised that the Opposition had tabled no substantive amendments at all to the first half of the Bill, which deals with the state pension created under clause 1, I thought, “Great, full tribute to them.” Pensions are a long-term business, and if we can achieve consensus on the state pension reforms, as we appear to have, that bodes well for all of our constituents, who need to know where they stand. Governments come and go, and it is important that pension structures are as stable as possible. Therefore—slightly in jest, but slightly seriously also—I thank the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East for regarding the first half of the Bill as more or less perfectly formed.

As for the clause itself, it does what it says on the tin:

“This Part creates a benefit called state pension.”

Clause 1(2) gives us the start date of April 2016 for that benefit. The Committee will be aware that when we published the Green Paper back in 2011 we envisaged a start date of 2016. We consulted further, we iterated and we did a lot of work within Government; earlier this year we produced a White Paper, and by then were wondering whether 2017 would not be a more realistic schedule. However, I am pleased to say that we worked very hard on the issue and by the time the draft Bill was published we were able to bring the date forward and indicate that we were looking again at 2016. We are grateful to all the members of the Select Committee for their pre-legislative scrutiny of part 1 of the Bill; they were keen that the date of 2016 be in the Bill and we are pleased to have been able to respond positively to that recommendation.

Clearly, as soon as a date is specified there will be a set of people who fall on the other side of it. That would be true whatever date we put in the Bill. In the past, major pension changes have taken place—in some cases, those changes were far more significant in terms of entitlements for many people than the ones that we are bringing forward here—with few or no transitional arrangements. We thought that we needed transitional arrangements, and a lot of our discussion on later clauses will deal with what they are. For example, we need special arrangements for people who have paid the married woman stamp and for people who have already built up more than a single tier. The thing that took the time, as it were, in getting this Bill right was the transitional arrangements.

Clause 1 simply says that from 2016 there will be this thing called the state pension, but getting from here to there is where the complexity comes in. We argue that we have produced quite a generous and comprehensive set of transitions. Clearly, there is always somebody who is on the wrong side of that line and who would rather be on the other side, and vice versa, but every time provision is made for another group to be treated under the old rules even if they come after the cut-off date, it adds further complexity and multiple systems end up running in parallel. The whole point of the reform is simplicity, so there is a trade-off here, and we believe that we have struck it right.

I note that we are considering new clause 1 in this grouping. To be fair to the hon. Gentleman, I will give him the opportunity to explain why he thinks that it is necessary before I explain why I think it is not. New clause 1 asks for a review, and so do new clause 2 and new clause 3. Having a review is not a substitute for having an opinion, so I hope that in moving new clause 1 the hon. Gentleman will not simply say “I am here to ask questions,” but that he will go further than that and suggest what he thinks the answers might be. He has commented publicly on this issue of the people who do not come under the new regime, and whereas his amendment simply says we should have a review, his public utterances say something rather different. In public he has said that the 700,000 women affected by this change should be able to opt in to the new system. However, his amendment does not say that, so I hope that in moving new clause 1 he will be able to explain—if that is what he thinks and what he has told the people that wanted to hear it—why when given the chance to amend the Bill to do that, he chose not to.

Many of the clauses in the Bill are less transparent than clause 1. Clause 1 is one of those few bits of legislation that one can read and know what it means, so I will not draw this out. Clause 1 enables us to create this new single, simple, decent state pension set above the level of the basic means test to provide a firm foundation for retirement saving and, for the first time, to treat women and the self-employed fairly in the pension system. It is the preface to a profound reform, and it is one that I am proud to commend to the Committee.

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

The Minister explained how we got to this point, and I will just take him up on a couple of points. He said, partly in jest, that he was pleased to welcome the Opposition’s general support for the state pension element of this Bill. I wonder why it is partly in jest. If we believe in consensus in pensions, it seems absolutely proper and correct that where there are not fundamental disagreements, it should be the normal way of proceeding that we do not oppose for opposition’s sake. I put that on the record.

The Minister referred to the 2016/2017 starting date. One might call this the starting date hokey-cokey; it was 2016 then it was 2017 and then it was back to 2016. The Minister explained why we got to this point, but I imagine it may have something to do with—and this can often be the case—the Treasury’s desires. One does not have to be a suspicious type to imagine that the Treasury might have had an interest in getting the increased National Insurance contributions windfall on to the public books a year earlier so that the 2015-16 accounts looked rather better than they otherwise would have. We have seen the same issue with the Royal Mail pension fund on a larger scale, so I wonder whether that played a part. None the less, we are where we are in terms of 2016.

We know that defined benefit schemes have some issues about making a transition in the timeframe that the Government have set. We heard some evidence to that effect in the Committee evidence sessions. The Minister referred to transitional arrangements, and indeed they are perhaps the most complicated part of the Bill. The Minister spoke of a trade-off between “simplicity” and a second noun that he did not quite mention, but I assume that it was “fairness”, which he mentioned in his evidence to the Committee last week. The Minister described a desire to prevent there being unfair losers. I am not sure there is such a thing as a fair loser, but none the less I take the Minister’s point. He is of course right that in any significant legislation cliff edges of one kind or another are inevitable. This is especially the case with pensions because rights accrue over a very long period of time.

This is where cost-neutrality comes in. I tried to push the Minister on this when we had a discussion last week. My understanding of a cost-neutral Bill is that it costs no more and no less than the previous system. However, we know that the new system will cost less than the current system. There will be a significant windfall to the Treasury, which has had some discussion already. What happens to that windfall to the Treasury from national insurance contributions remains a little fuzzy. We know that the public sector will have to absorb those increased national insurance contributions from employers and employees. What impact will that have on public services? Will it mean a reduction in NHS services or a further reduction in council budgets? For example, local government pension schemes will have to find £800 million.

There are issues here even about creating a benefit called the “state pension”. I suspect that we will go into some of these things in more detail as we go forward. Consensus is important if this is to be a reform for the long term. The Minister will have had many discussions with the pensions industry, pension stakeholders and consumer stakeholders about the importance of consensus. I have no problem with consensus, and where I think the Government are on the right track I am not ashamed to say so. The Minister did not mention that the previous Government were moving very slowly down the same path as the current Government regarding a shift to a flat-rate state pension. This Government have taken it forward much more rapidly. That is where we are.

Overall, our view is that a flat-rate state pension could be an improvement. The debate is on issues of simplicity, fairness and cost, and more fundamentally on encouraging an incentive to save. When we discuss this it often comes across very clearly that those on the Government Benches are enthusiastic about a flat-rate state pension because it will give people knowledge of what they will get from the state, and therefore they can make their own provision on top. It seems straightforward. As this goes forward there will be discussions in Committee about what people will save into as we move towards increased additional private savings.

Clause 1 sets out a benefit called a “state pension”. The Minister set down what I guess he considered to be a challenge on new clause 1. The Minister is not alone on the Government side in his predilection for encouraging the Opposition not only to do the job of the official Opposition, which is to ask questions and scrutinise Government legislation, but to lay all our cards on the table.

Steve Webb (Liberal Democrat, Thornbury and Yate)

Any.

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

The Minister shouts “Any”. I will have to disappoint him, but I will do my best not to deny myself the opportunity to respond to that comment. The situation is that in this Pensions Bill there are cliff edges and significant losers. That is inevitable when you move rapidly to a single-tier, flat-rate system. The Minister says that he is keen to avoid unfair losers, and he produced figures on the cost of bringing 700,000 women into the system. Anyone who listened to the evidence of the 700,000 Group would have been impressed by their diligence in understanding the issues. They emphasised the effect that an average difference of £6 a week in the state pension for the rest of someone’s life can have on the living standards of people who have no other savings.

That question is worth considering. The Minister produced evidence suggesting that 85% of the 700,000 Group will be better off. In its evidence, the 700,000 Group said it calculated that 70,000 women will be worse off, and it argued strongly that having the same pension as men of the same age would make a significant difference the lives of those women in retirement.

The Minister rightly referred to the inevitability of cliff edges. However, we should put ourselves in the shoes of those who will lose out under the new system, such as those women. Retiring on a pension is for the rest of a person’s life; it is not a one-off loss. If the person is in the group that loses out, they know that for the rest of their lives they will get less than a man of the same age. I think that we would all see that as unfair.

The Minister rightly said that every time the system is adjusted another group that feels it is losing out is created. I have listened to the Minister’s arguments, and they have some merit. However, at times he does not give enough credit to the case of that group of women. The new clause asks the Government to review this part of the Bill and present their analysis to House. That is not an immodest suggestion, and it gives due credit to the campaign of that group of women.

A group of about 70,000 women campaigned hard on the 2016/2017 issue. They were going to lose out from the move to 2017 because they would have retired before the new state pension came in. They ran an effective campaign, and the Government moved the start date to 2016. I have suggested that might also have been something to do with the Treasury’s desire to get the increased national insurance contributions on the public books. However, I am sure that the campaign of those women, in the pages of newspapers and elsewhere, also played a role.

I see no problem with asking the Government to review the case of those 700,000 women and come back to the House within six months. After all, the Bill will not take effect until 2016—after the next election. That seems a fair way to proceed, and I ask the Minister to consider the new clause.

Sheila Gilmore (Labour, Edinburgh East)

It is a pleasure to serve under your chairmanship, Mr Caton. It is quite an achievement for the Minister to have reached this stage. We have been discussing the imminence of this provision throughout the whole of this government, and it has been driven by the Minister.

The Minister is aware of my point of view. The Government have given people slightly false expectations about this reform, which, to some extent, explains some of the issues that have arisen. We have heard from groups that are aware they will not qualify for the new pension, and feel—some rightly and some less so—that they will lose out. It will be interesting to see what happens when the new pension is introduced, because I suspect that another group will suddenly discover that far from getting an additional £30-odd a week, that is not quite how it works. They might find that they already have a state pension of roughly that amount.

The reform has been made possible at a time of Government austerity by the fact that some building blocks of the system are already in place. If they were not, it would be a massive change for many people. Over many years, the different building blocks have been put in place, starting, arguably, with the graduated pension, way back in the mist of time. When some people look at their pension statement, they will see an entry for that. It was not a particularly generous pension, and anyone who still has it will see that it is not giving them much. Then we had the SERPS, and then the second state pension from 2002, which largely built on the SERPS’ legacy.

A number of people have had their pension built up over the past few years—that is extremely important—because they were earning above the national insurance lower earnings limit, even if they did not have the good fortune of being in an employer’s pension scheme; we know that the number of people in such schemes has been falling rather than rising in recent years. As a result, the difference that people will see in practice, whether or not they have been contracted out from the state scheme, is that they will have had that built up. That also gives us a bit of a lesson for the future.

I agree with the Minister that we need to try to get to a stage where such things are not chopped and changed constantly. From an academic and theoretical point of view, it is arguable that SERPS was a good scheme for many groups, particularly those who had a less-than-complete work record, perhaps because of caring responsibilities or for health or disability reasons. The scheme was structured in such a way that one had only to build up for 20 years, so it was easier for people to reach the full entitlement. For a number of historical reasons, that was largely taken apart in various ways over the following 20 years, which left the previous Government coming in to try to put some of that back together again. I would argue that that was done with S2P, in a slightly different way from before. We are now putting the final touches on that. For all of us and for future generations, we must not throw the issue up in the air again with some new idea, because pensions inherently need a certain degree of stability.

Regarding new clause 1 and the views of the particular group with whom we are concerned, they feel particularly that they are a group who has seen changes happen around them that they have not had much control over or time to adjust to, and which they had probably not anticipated earlier in their working life. They probably belong to a generation whose opportunities to build up other pensions were fewer.

Luckily, we have seen huge changes in pensions in both the public and private sectors, although sadly we are losing some of the advantages of some of those pensions for other reasons. It has not been so many years since a lot of part-time workers were not included in their firm’s pension scheme at all. Even if they wanted to contribute, they were not allowed to join. That was true even in parts of the public sector, where a lot of women—particularly women, but not exclusively—who worked part time through a large part of their working life did not have the opportunity to contribute to a pension scheme, even had they wanted to. That form of discrimination in gaining entry to pension schemes has been done away with, which is a good thing, though ironically at a time when probably for many—male or female, full or part-time—the opportunity to join any pension scheme has diminished.

Many people in that group have been through exactly that, and in their early working lives, will have had less opportunity to join a pension scheme if they were working part time alongside their caring responsibilities. There is an argument about how well trailed the increase in pension age was, with many people feeling strongly that they were not made fully aware of what was going to happen. Certainly for many of my generation, the assumption—right or wrong, fair or otherwise—that a woman’s pension age would be 60 was deeply ingrained; it was what we understood would happen.

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

My hon. Friend is setting out the particular issues relating to women and pensions very clearly, and the 700,000 Group are part of the debate. Does she agree that there is a perception problem for the Government? Auto-enrolment underpins the movement towards a flat-rate state pension system. Increasing the threshold for auto-enrolment every year in line with the personal allowance has taken up to 1 million women out of automatic enrolment in a pension scheme. The danger for the Government is that the perception continues that women do not get a fair deal from the pension system relative to men.

Sheila Gilmore (Labour, Edinburgh East)

There is a great deal in that. Those of us who served on the previous Pensions Bill Committee—we are obviously gluttons for punishment—discussed at considerable length what would happen with auto-enrolment.

The issue of gender fairness and unfairness in pensions is fascinating. It can be looked at from different ends of the spectrum, as it were. It can be argued—and sometimes is—that women have had the advantage of retiring earlier despite their life expectancy generally being longer. On that basis, some people have argued that women have had a better deal. On the other hand, however, we know—and have known for very many years—that pensioner poverty, where it exists, is much greater for women, often, ironically, as a result of that very longevity.

Women live for longer and are therefore more likely to have used up any savings in their retirement, and many—certainly in the past and to some degree now—will have benefitted from having been in a partnership, but very often they will have outlived their husband. At that point, even if their husband had a pension from his employment, they are likely to get a widow’s pension, which is less. All those factors mean that women in retirement are often quite substantially worse off, financially, than men, despite—or perhaps because of—that longevity.

Many years ago, I started to research women and pensions in a very different climate from now. The big issues then were about how we got women into firms’ pensions, for example, because discrimination still existed. The big theme there was women’s poverty and lower incomes in retirement. That continued to be an issue, and was a big driver behind the introduction of pension credit 10 years ago, which was a quick way of dealing with pensioner poverty then by dealing with people who were already retired, rather than through a scheme such as the one before us today, which does not apply to current pensions at all.

It was predominantly women who benefited from the pension credit system, and we know that pensioner poverty across the piece has improved substantially as a result. Nevertheless, a lot of these women—this was the evidence they gave—feel that, for all sorts of reasons, they have not had the opportunity to build up other pension provision during their working life. They are now close to pension age. It has moved away from them slightly, but they are in the age group—roughly between 60 and 62—that will not be able to build up alternative provision.

The Select Committee considered the matter and accepted that the position that some people thought existed—the stark one that someone would get £107 while someone else would get £144—was not exactly how it was. Nevertheless, the Government’s figures suggest that women in this group would, under current pension arrangements—as far as the Government are concerned, they will be retiring under the current arrangements—will receive, on average, £127 a week in state pension, not the £107 they might have thought. Under the new pension arrangements, however, they would receive £133. Not everybody who retires after the start date will get the full amount, because it depends on their years of contribution, their contracted-out status and so on, so everybody is in a slightly different position, and that produces a median loss of around £6 a week.

On one level, it could be argued that that is not very much. If it is the correct figure, the amount involved for a relatively small cohort is not huge, but the impact on their hopefully many years of retirement to come would be substantial. The problem with medians, as always, is that we have to look at the range, and for some that range would be considerably different. For some in this group, it will not be a matter of simply £6; it will be considerably more, and they are anxious about that.

If we are serious about equalising, which is the intention, we should bear it in mind that the argument that those people will simply have to put up with it—compared with a man with the same date of birth—for the rest of their retirement seems to fly in the face of equalisation. For future generations and retirees, we are moving towards a more equalised pension age in the not-too-distant future, and younger women will expect to have the same pension age. These women, however, have experienced those changes in a working life that has not given them the opportunity to make the changes.

It has been suggested for some that when they reach state pension age in the period running up to 2016, they could choose not to take their pension at that point, but to defer and build up an increased pension. It is true that the current arrangements for deferral are generous, although they will not be so generous if these provisions go through. At the moment, however, financial advisers often advise people that it is a pretty good deal with higher interest than any other form of investment, which is perhaps rather odd—I do not know. I do not have figures for how many people are deferring on that basis.

Whether someone defers, however, will depend on whether they are in the financial position to do so, and that is another crunch point for this group, as they pointed out in evidence to this Committee and in written submissions to the Select Committee. Many of them made the point that to defer receipt of state pension in order to gain additional accrual is a luxury. For some people, it might not be; they might have a partner in employment or still be working themselves, in which case, it might be a sensible step to take. For some people, then, it might be reasonable, but there are those who are already on a relatively low income who, for a number of reasons, might already have left employment.

We know that the number of people in full-time employment—indeed, those in employment at all—drops off for those nearing state pension age for a whole host of reasons. Sometimes, that is to do with health and at other times it is to do with caring responsibilities. Of course, although at that age most women will have seen their children grow up, it is at that point that other caring responsibilities come into the field.

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

I want to pick up on the argument my hon. Friend is developing on women being more likely to be in poverty in retirement than men of the same age. Does she agree that that is at the heart of the issue and that those women who will lose out are those who, in many cases, will not have any other retirement income? As she says, £6 a week on average is significant, but that average obscures the fact that there will be those who will lose significantly for the rest of their lives.

Sheila Gilmore (Labour, Edinburgh East)

That is the problem with taking a median figure and suggesting that that is fine, because that is not much. The need to take up caring responsibilities at that stage of one’s life is a big issue. We know that from social care and the benefits available to people who have to undertake those caring responsibilities.

Such caring is not always for elderly parents; it can be for a partner who falls sick. I have met a number of constituents who are in that position because their partner fell sick in some way. I spoke to a woman recently whose husband had developed Parkinson’s disease. She had returned to work after her children had grown up and had anticipated that she would work regularly up to her pension age, but then, because her husband was becoming increasingly unwell, she had to give up her job to look after him. They lost not only his income, owing to his not being able to work, but her earned income as well. There are certain provisions, such as carer’s allowance, that come into play, but that, at £57 a week, is not a substantial substitute for an earned income.

The position is not uncommon. Many people want to undertake these caring responsibilities; they will often say that they would rather do that than pay for somebody else or rely on the local authority, although its help can be useful. They positively want to care, whether for their partner or parent, or, perhaps in some cases, for a child with disabilities who is now an adult child with disabilities. However, there are severe financial consequences for doing that.

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

I apologise for interrupting my hon. Friend when she was in full flow, but it struck me that she is making a powerful case for new clause 1, which would call for the Government to conduct a review. We often talk in terms of medians and generalisations, which is inevitable on one level, but it seems likely that the figure of 70,000 women losing out by an average of £6 a week might hide some significant losses for women who have no other means of support. Does she agree that a review would enable the Government to dig down and find out exactly what is going on within that cohort?

Sheila Gilmore (Labour, Edinburgh East)

I fully agree with that and refer the Committee to the Work and Pensions Committee pre-legislative scrutiny on part 1 of the Bill. We said that it would be helpful to look not only at the average impact, but at the range of impacts and the lack of being able to claim the new pension among the group of women.

We were aware that the position was not as black and white as had been assumed by some people. Some might be pleasantly surprised at the outcome in their particular case, but others will be in a difficult position for the rest of their retirement. That was powerfully put in the evidence that we received last week from Marion Rees:

“For the majority of people, a pension is not about how much they will receive over a period of 20 years or so, but how much money they have to live on that week.”––[Official Report, Pensions Public Bill Committee, 27 June 2013; c. 77, Q145.]

It is indeed the case that if someone’s pension income—from whatever source—is low, they will struggle to pay energy bills and rent, if they are still paying rent. A reasonable standard of living will be a struggle for women on a lower income. It is of no comfort to say, “If we take into account the fact that you retired a couple of years earlier than your hypothetical twin brother and you are likely to live a bit longer than that twin brother, that is fine and you do not have a problem.” That is cold comfort when someone is struggling with the cost of day-to-day living.

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

It strikes me that there is also an issue of contribution. On Second Reading, I heard one of the Minister’s Liberal Democrat colleagues describe the new pension as a “citizen’s pension”, but of course it is actually a contributory system, which I think most of us applaud.

A woman who has paid into the system her whole life to get the full state pension as it stands under the current system, and who, when it was possible, also paid into SERPS or S2P, will still find that, at retirement—despite doing all that saving, doing the right thing and playing by the rules, things that the Government are rightly very keen on—she gets less than a man of precisely the same age. The sense that they have done the right thing but not got the outcome that they would expect is likely to be a powerful one.

Sheila Gilmore (Labour, Edinburgh East)

That is one of the issues that the women who gave evidence stressed. They described what it is actually like for them and the position that they find themselves in. A lot of people—men and women—have said to me, quite angrily at times, that they do not consider a pension to be a benefit, but something they have contributed to throughout their working lives. I suppose that that is partly because of the current debates over what is variously called welfare or benefit spending.

Very angry pensioners have told me that under no circumstances would they consider themselves welfare recipients. They have worked, contributed and paid in over their working life and they had good expectations. That is true for all groups, including this group of women. Contributions are an important part of our welfare state and have been since its inception.

We should not assess a contributory welfare state in terms of how much someone puts in and takes out in any given year, because it is about a lifespan. There are times in people’s lives when they pay more in taxes, national insurance contributions and so on than they ever get back at that stage. Because, however, the vast majority of the population survive beyond pension age, they expect to receive a pension and that is one of the biggest points to which they expect to contribute. In their retirement they expect to get back what they put in.

The evidence we received was clear that these women feel strongly that they have contributed. Many of them have achieved the number of years of contribution; it is not that they have not been working, contributing or credited with sufficient contributions. Some of them said that they had originally assumed that 39 years of contributions were needed to get a full retirement pension in their own name. For some of them, it is not a question of whether they have enough contributions—they have—but the fact that they are unable to get into the position they would have been in if they were treated in the same way as a man of the same age.

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

As my hon. Friend was speaking, it struck me that central to the issue are those in the last cohort before equalisation. I think she raised the issue last week. If the Minister is determined to push ahead rapidly—there are good reasons for that—with the new system, the danger is that the group of women in the last cohort before equalisation lose out in precisely the way my hon. Friend is describing.

Sheila Gilmore (Labour, Edinburgh East)

The issue is very much linked to all the previous debates we had about the acceleration of the equalisation process and the position of those who, it would appear, perhaps did not get as much good information as they should have. Many of the women in this group do not feel that the suggestions as to how they could achieve that income regardless have been good enough.

I have already dealt with the complications on deferring receipt of pension. Obviously, someone cannot defer reaching state pension age, because that has been laid down. They cannot say, “I will not retire at 62 as I am supposed to; I will wait until I am 65,” but they can defer receipt of their pension and it will grow.

The problem that some of these women have is that if they are already struggling financially, not taking that pension for another few years will be extremely difficult. They have Hobson’s choice: either they struggle on with whatever income they have and defer so that they can increase the amount they get when they opt to take their pension, or they take the lower pension now, because they need it and cannot afford to wait. That is not an easy choice for them. They have often got into that position not through not having worked, but because of their health situation or caring responsibilities, however willingly embarked on. It is a bitter pill to take.

An average of £6 does not sound like much. If the total cost of including such women in the new pension arrangements is not very much, it would be reasonable to look again at whether it would be possible to do so. Women in such a position are sometimes told that if they have no income other than the hypothetical £127 a week, if these figures are correct—in some cases it will be less than that—that does not really matter, because their income can be topped up with pension credit. Given that one of the Bill’s stated aims is to reduce dependence on means-tested top-ups, for the women we are discussing such advice will be a bitter pill to swallow. They will find it ironic to be told that they will be all right because pension credit will exist throughout their retirement, as indeed it will probably have to.

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

My hon. Friend mentions means-testing. Is that not another reason to welcome a review of the impact of the new state pension on this group of women? The Government are keen to reduce means-testing, and there is some debate about how much they are likely to succeed. One way further to reduce means-testing would be to ensure that none of these 700,000 women has to rely on means-tested benefits. A review would enable the Government to gather information on how many are likely to apply for means-tested benefits.

Sheila Gilmore (Labour, Edinburgh East)

That would be a useful aspect of a review. Means-testing is an important issue for many people, and it is the downside of having dealt with pensioner poverty relatively rapidly since 1997. For those who are just above the means-tested level, or for those who feel that their savings or other income is being eroded by means-testing, perceived anomalies cause resentment. It is important to move away from that situation, but we should not leave this group adrift and facing the prospect of surviving for the rest of their retirement—for some women, that might be as long as 30 years—on a greatly reduced income.

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

The Minister has applauded the cross-party consensus on the matter. In that spirit, it would be logical for the Government to accede to our request for a review of the situation for the women we are discussing.

Sheila Gilmore (Labour, Edinburgh East)

All legislation, no matter how well constructed, will have problems around its edges. Over the years, the problems become clear, and people sometimes ask why they were not anticipated at the start because they seem obvious. Governments are always enthusiastic about creating legislation that appears to be complete in itself and not hung about with, “We will look at this bit again, and we might make changes,” but there is another side to that coin. Sometimes we have to make changes. Sometimes we have to be in a position where you say, “Broadly this was right. Broadly we are doing the right thing. Broadly people will benefit from this but there may be groups who are losers in that situation and that could have been avoided.”

We have a distinct group of people who, over the past couple of years, have been making a powerful case about the position they find themselves in. They feel that they are not being fully listened to. By looking at bald averages, some people are presenting this group’s circumstances so that it looks as if it is making a fuss about not very much. This is the time for us to look at the matter in depth. I would argue that that is what the Select Committee also wanted. It wanted to look at the range of impacts and to see whether there could be ways of mitigating them.

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

When the Government brought forward the proposals in their White Paper, an impression was given that everyone would get £144. That impression inadvertently got into the public domain. It is therefore not surprising that those who find that, despite having done the right thing, they will not get £144 feel hard done by. Again, my hon. Friend may agree that that is a reason for the Government, in a spirit of consensus and co-operation, to accede to the demand to go back and look at this and dig down into the detail of who is losing and by how much.

Sheila Gilmore (Labour, Edinburgh East)

I agree. As I said at the outset, there is a perceptual difficulty. The Minister reminded me that when he was in front of the Select Committee I suggested that he thought his whole scheme was fandabbydosey—a word which Scots might be more familiar with.

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

Can my hon. Friend explain the origin of “fandabbydosey”? Many members of the Committee may not be aware of that very popular Scottish double act.

Sheila Gilmore (Labour, Edinburgh East)

I suspect that that would be regarded as straying from the purpose of the clause. It was a popular Scottish comedy act involving a couple who played father and son, although they were not father and son. It became one of those catchphrases that are very popular in Scotland. We have some wonderful language which I am sure could become current in the whole of the United Kingdom. My purpose in using that word is to say that sometimes we overegg the pudding. We give people the impression that something will be a breakthrough. All Governments are guilty of this at times. We want to say that this is a revolution and everything will be changing from this point, when in fact what we have here is largely an evolution, a build-up and a step towards a position that will hopefully achieve the main aim, which is to make people better off in retirement.

However, people can only be better off in retirement if two conditions are met. First, we have to make the level of this single-tier pension sufficient that people do not have to rely on means-testing, an issue on which there will perhaps be further debate later. Secondly, people have to be encouraged to save and be able to save. There are a lot of issues associated with private pensions that we will also come to later. They still have to be improved if people are to believe it is worth saving. I am not convinced that people at the age of 30 think, “Oh, I will lose out on pension credit when I am 70 so I had better get saving now.” There are many other issues that stop people saving, and we have to address those, too.

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

My hon. Friend makes good points about the two halves of the Bill and the interaction between state pension and additional private pension savings. I am sure she will agree that, if the logic of the Bill were to simplify and clarify the state system so that people know what they will receive from the state and can make additional savings, it might or might not be workable. However, the women covered by the Bill will not have the chance to save privately to a significant degree before retirement.

Sheila Gilmore (Labour, Edinburgh East)

I agree absolutely. It is an important issue for women. The problem is not the lack of time but the fact that they belong to a generation that has, for several reasons, found it difficult to create private pension provision. We know that the difference in pension savings between men and women is huge. It has had an historic effect, and affects those who are approaching, as well as those already in, retirement. Many such women have poor private pension provision and, in part, that is due to a lack of opportunities resulting from a disrupted work pattern, or being unable to join a pension scheme because they were part-time workers or on a certain level of income. The stark reality is that, without the state pension, retirement prospects for many women will be grim.

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

The women to whom my hon. Friend refers would have been in the midst of their working lives when the Thatcher Government went on a great drive to encourage private personal pensions, many of which were caught up in the mis-selling scandals in the 1990s about which we know so much. Such women have been through many changes in the pensions landscape, several of them not for the better and not to the benefit of their pension savings.

Sheila Gilmore (Labour, Edinburgh East)

I felt strongly about the issue at the time, not only retrospectively. I remember the coming of the freedom to leave SERPS and to take up another form of pension. I was working as a solicitor at the time, and I recall discussing such matters with my secretary. She was not much younger than me, and she grasped that opportunity mainly because it meant she would be paying out less. Her children were coming into their teens, which is an expensive time as parents know. She did not have a big income—obviously, I was a mean employer—and her husband was a manual worker who was in and out of work. She said explicitly that such an arrangement allowed her to have more money in her pocket at the time, and she left SERPS when able to do so, as I am sure many others did. I am not sure there was ever a way of forcing people to keep up their payments—they were supposed to choose whether to stay with SERPS or to move to a personal pension. In many cases, the actual product has been very poor.

Soon after that time, I had to leave SERPS because I became a partner in the firm, which meant that, technically, I was self-employed—although that did not involve having much influence in the firm; however, that is how law firms operate. After leaving SERPS, I thought I should buy into a personal pension scheme. However, having seen schemes grow at glacial levels or even shrink sometimes, I reached the point where I thought it would be better to put the money under the bed. In fact, I did not top up the pension scheme because the performance was so poor. Many people may well have been in that position.

Sometimes, we need to be looked after for our own sake, and here I would be quite directive, given the opportunity, and not allow people to opt out of auto-enrolment. We need to be guided on this matter when we are younger, because the last thing we want to think about when we are, say, 30 or 40 is that we are going to get older and may need a pension.

I hope we will have the opportunity to consider the position of this cohort and look in detail at their range of circumstances and what lies behind the figure. People may say, “Well, it is only £6 a week and they can make that up”, but for many the suggestions made for making that sum up are not viable. I hope we can look at this issue again before the legislation comes into force, because although the start date of 2016 is earlier than the previous date, it is still some three years away, so there is ample time to refine the measure and get it right for the point of transfer.

I urge the Minister to look again at this issue and provide the opportunity to reconsider. Perhaps at the end of the review he will still be satisfied that he is doing the right thing, but if there were at least the opportunity to reconsider, the group of women in question would feel that the Government have listened to their case, properly and fully investigated it, and come to a decision. I hope that, having considered the matter, the Government will accept that the perfect storm of circumstances that has affected this cohort of women means that we should look positively in their direction and allow them to choose the old or the new system, whichever will be the better for them. At this stage, we are asking not for such an amendment to be made, but for the information to be fully researched and considered, because in the two and a half years between now and the Bill’s implementation, there will be ample opportunity to reconsider.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I sense no desire that the clause should not stand part of the Bill, which is a good start—a note of consensus—so I will focus in my response mainly on new clause 1. It would require us to conduct a review of the position of all women born on or after 6 April 1951, which is a slightly broader scope than is intended—the 1951-53 group—and report within six months of Royal Assent. To paraphrase loosely, the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East, who leads for the Opposition, said, “This is just probing. I am an academic. It’s our job to ask”—

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

I never said that.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I read between the lines.

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

To correct the record, I never mentioned academia at all. I should be careful, if I were the Minister, since I suspect that he spent much longer in academia than I did.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I meant it as a compliment, but never mind.

The hon. Gentleman says that his job is to probe, not to have a position. He said that we were trying to get him to lay his cards on the table, but he certainly would not be doing anything like that. The dilemma is that if Members lay their cards on the table not in the House but outside it, to concerned people, there is a bit of tension. On 24 May, the hon. Gentleman said:

“We believe to ensure universality the Government must address the unfairness of 700,000 women being deemed ineligible…by enabling all men and women who reach the age of 65 after the implementation date of 2016 to receive the single-tier pension.”

There is a risk that people hearing that might have thought that he meant it. There is a danger attached, because since then the shadow Chancellor has said, “We’re not spending any money on anything unless I say so.” However, what the hon. Gentleman said is on the record now, so 700,000 people—to pick a random number—might think that if Labour were in office, they would do this; but given the chance to amend the legislation they do not do it, but ask for a review.

Andrew Griffiths (Conservative, Burton)

Does the Minister agree that this is a perfect time for the hon. Gentleman to put on the record what he really thinks?

Steve Webb (Liberal Democrat, Thornbury and Yate)

Yes. When better to find out what the Opposition think than when we are scrutinising the Bill in detail? It is no coincidence that the first three new clauses we are considering all ask for a review. As I said at the start, having a review is no substitute for having an opinion.

Let us look at what is proposed. The fundamental proposition, with which I disagree, is that this cohort of women is uniquely disadvantaged. I want to compare them with two other groups: women who reached state pension age before April 2010, and those who do so after April 2016. In other words, there is a first, middle and later group. The argument is that the group in the middle is uniquely disadvantaged and should have special provision in law.

Let us look at the three facets of their state pension. The first is the age at which they can get it; the second is the number of years they have to build up contributions; and the third is whether they are in the single tier or not. Let us give each of those groups a score for how well or badly they do. For the post-April 2016 group there is good news; they get single tier and a tick there. The bad news is that their state pension age could be anywhere between 63 and 68. Somewhere in the middle is the fact that they need 35 years for a full pension. For them, it is one good, one bad and one somewhere in the middle.

For the group of women we are discussing, the good news is that they need 30 years to get a basic state pension. The middling bad news is a pension age of 61 to 63, which is not as high as the ones to come, but better than the ones before. The bad news is that they are not in single tier. For them, there is one good, one bad and one somewhere in the middle.

For the pre-April 2010 women, the bad news is that they need 39 years for a state pension and they are not in single tier. The good news is that they have a state pension age of 60. Against the three criteria, the cohort that might most legitimately be upset is not the group we are looking at, who have some good, some bad and some middling things; it is not the post-single tier people, who have some good, some bad and some middling things; it is actually the pre-April 2010 retirees. The proposed new clause would not do anything for them. It basically says, “Tough. You have already retired. Just live with it.” All the women in that group had in spades all the things that the hon. Member for Edinburgh East described. They had less time under the state second pension and they were more likely to have worked when women were not even allowed into pension schemes. What did the previous Government do for those women when they changed the system in 2010? Absolutely nothing.

It is very odd to say that the group under discussion is uniquely disadvantaged and needs special provision in law.

Pamela Nash (Labour, Airdrie and Shotts)

The Minister says that this group is not particularly disadvantaged. However, many of the constituents who attended an event I held recently with the shadow pensions Minister were very concerned about the changes. The crux of their argument was that they would be treated very differently from a man who might live next door to them and have the same date of birth and financial situation. Does that not warrant a review in five years’ time? The Minister says they are not disadvantaged, but their concerns are very legitimate.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I absolutely understand. That is like the point made by the hon. Member for Edinburgh East. There is a perception that they are missing out on Christmas. I do not mean that rudely; that is the perception. They have seen the figure of £144. They know what they are getting or are going to get. They see a big difference and think it is not fair and that they are missing out. As the review we have already done shows, the typical difference is about £6 a week between what they will get under the current rules and what they would get if we applied the new rules to them. I absolutely do not belittle £6 a week. I would not dream of trivialising £6; it is an important sum of money. However, the strength of anger is based on the sense that it is £107 against £144. In most cases it is nothing like that. That is the first point.

The second point is that we have looked carefully at that group. We have conducted a review and published a detailed analytical note on the position of those women, and it all depends on the comparison that is made. Compared with a man born on the same day, the women in question would get one good thing and one bad thing. The good thing is that they would get their pension at 61, 62 or 63. The bad thing from their point of view is that they would not get the single tier. My thought experiment on Second Reading was that, if we were treating them unfairly compared with a man, we could put a tick box on all the forms so that they could request to be treated under the men’s rules, not the women’s rules. If we did that, 90% of them would hate me. Perhaps 100% do; I do not know. [Interruption.] I see a wry smile over there.

If we are being so unfair to the women in question by not treating them the same as a man, there is an open invitation. We can put a tick box on the form and they can take the deal that men get, and 90% of them, give or take, would be wrong to do that. That does not suggest to me that we are being unfair to them relative to a man. When compared with women on either side of them in age, as I have said, they will get some things that are better and some things that are worse, but they will not be uniquely disadvantaged. That is really what I am trying to say.

Pamela Nash (Labour, Airdrie and Shotts)

Is it not then fair to say that, if there are winners and losers, in five years we will have a review to show those pensioners the degree to which they may have been advantaged or disadvantaged?

Steve Webb (Liberal Democrat, Thornbury and Yate)

I would make two points in response to that. First of all, we already pretty much know the answer to the question. Some of the women we are talking about are already pensioners—if a woman was born in 1951, she will already be drawing a pension. By the time the Bill receives Royal Assent, a woman born in 1952 will be drawing a pension. It is not as if we need to wait for five years; we have the data. We know people’s national insurance records, and we know more or less what the answer is.

Secondly, the new clause does not ask for a review in five years; it asks for a review now, to be completed within six months of Royal Assent. The timing is important. If Parliament approves it, the Bill should get Royal Assent by Easter 2014, so the new clause would require us to have conducted a review and reported on it by October 2014. For understandable reasons, the hon. Member for Edinburgh East says we have “ample time”—that was the phrase she used. However, she has never been anywhere near a Government computer system. The idea seems to be that we could complete a review in the autumn of 2014 and then perhaps do something about the findings in primary legislation. The Bill will take a year to go through Parliament and we have an election in 2015, so we would have to whizz something through by Easter 2015. There is no way we could then deliver the changes in April 2016, especially if we were to conduct the other two reviews that the Opposition want as well.

The review proposed in the new clause would delay the Bill. That would create a new set of women who would say, “Hang on a minute, it is starting in 2017 or 2018, but I am the wrong side of that line—and, you swine, you have put my pension age up as well, under the 2011 Act.” The practical implication of new clause 1 would be a delay, with more women saying that the measures were not fair and more women whose pension age we have increased at relatively short notice saying, “And I do not get the single tier, either.” I always wanted to be able to tell any women for whom I had put up the state pension age that she would get single tier. I can say that at present, but I could not if we were to conduct the review proposed in the new clause.

Sally West of Age UK was asked on “Money Box” what she thought on this issue. She said that she sympathised with the group affected—as indeed do I—but went on to say this:

“I think it would be quite complicated to give people the choice”.

I shall explain briefly why that is the case. What is proposed is that we get to the men’s state pension age of 65 and at that point say to the women in this group, “Which pension do you want, the new one or the old one?” We do 700,000 calculations and, as seems blindingly obvious, they pick the bigger number—of course they do. However, the single-tier pension is a package, not just one element, so what happens then? Let us suppose that the first thing that happens—God forbid—is that, the day after that, the husband of one of those women dies. She thinks to herself, “I will now get a widow’s pension,” but I will have to say to her, “Sorry, you are a single-tier pensioner. You do not get a widow’s pension any more.” She will say, “That is not fair. I have only just changed, so can I change back? Why did you not warn me?” We would have to assemble comprehensive advice, information and so on. Nobody knows whose husband is going to die when, so how could people make informed decisions?

To give an even more complicated example, single-tier pensioners will not get savings credit. Let us suppose that, on day one, someone chooses what looks like a higher number; a year later, when they apply for pension credit because their husband has retired and their family income has dropped, we will have to give them some meagre amount of pension credit, or else nothing at all. They will ask, “Why am I not getting pension credit? My neighbour next door is,” and we will say, “You are a single-tier pensioner, so you do not get savings credit.” They will ask why we did not tell them, and we will have to say that we did, but that they did not know when they made their choice whether, two years down the track, they would hypothetically be entitled to savings credit. If someone can find me anybody who can tell me whether they are entitled to savings credit on that same day, I will give them a chocolate bar; the idea that someone would know years ahead whether they might be entitled to savings credit is nonsense.

There would, then, be people who thought that they were making the right choice when they chose a pension two quid higher or six quid higher, but who would thereby deprive themselves of a widow’s pension or 15 quid of savings credit. The choices are not as simple as is being made out; they are complicated and difficult. Some people could make the wrong choice; what would happen then?

I do not wish to press this point too hard, but to return to the argument made by the hon. Member for Edinburgh East that a particular set of women have a pretty rough deal with their pensions, we should bear in mind that those women spent 13 years of their working lives under the previous Government. If they are now getting to the age of 61 or thereabouts with lousy pensions, there is a shared responsibility for that. The Opposition are asking us to fix the situation for those women after they have retired, but they did not address that problem during the 13 years that they were in government.

Mark Reckless (Conservative, Rochester and Strood)

The Minister speaks of a shared responsibility, and I believe that the Opposition also want the system to be financially neutral. If there were a choice, although some people would get it wrong, surely most would be inclined to choose the pension that was financially better packaged. Money would therefore have to be saved elsewhere. Where would that be, according to the Opposition?

Steve Webb (Liberal Democrat, Thornbury and Yate)

As my hon. Friend perhaps suspects, there is not one. They are asking for a review rather than for the system to be amended, because such an amendment would have a cost to it and the money would have to be found from somewhere. The Labour party has said that it will only spend money that it can fund, and as it cannot fund this, it is just dangling a carrot. A group of people are concerned about the matter and the Labour party is sympathetic with them, as am I. It is dangling the carrot that it might do something about it, but there is a price tag attached. That may be £150 million to £200 million initially, going up to £300 million at peak and totalling something like £4 billion over the lifetime of the policy. It serious money even in pensions terms, but there is no suggestion of where that money might come from.

Sheila Gilmore (Labour, Edinburgh East)

I am disappointed that the Minister verged on the Government’s typical ground-zero argument that nothing has happened for the last 13 years, because I recall the changes. For example, S2P is advantageous for many women, especially carers, and there were the changes that came in during 2010. In fact, the previous Government gave a lot of attention to pensions. I ask the Minister to consider the additional income that has come into the Treasury through the contracted-out arrangements, none of which appears to have been earmarked for any other purpose. It may be worth looking at that as a possible source of this funding.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I will obviously come back to where the national insurance rebate money goes; again, I am not sure whether we just heard a spending commitment to use that money for that purpose. The hon. Lady seems to want to have it both ways. She says that the previous Government did great things for women and for pensions, yet here is a group of women born between 1951 and 1953, who are so adversely affected and who have such lousy pension histories that they need special treatment. They cannot both be true.

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

I understand the Minister’s desire to draw the previous Government into this. The women in question have been accruing pension rights over a long period, so it is not about one Government or another, it is about Governments over the whole period of their lifetimes. I do not think it is helpful to focus on the previous Government or even exclusively on this Government. Our argument is that over a period of time, these women have experienced a number of changes, and that there might be a case for reviewing their position under the Bill. I would not make the matter as partisan as the Minister has.

Steve Webb (Liberal Democrat, Thornbury and Yate)

My point is simply that if this cohort of women have particularly bad pension histories, is the right time to fix it after they have retired, as the new clause suggests, or was it in the 13 years, or indeed the 40 years, before they retired? My suggestion is that as the Labour party held the levers of power for a significant chunk of that time, if these women have retired on lousy pensions, a sense of responsibility is called for.

I do not know if hon. Members can remember the start of the hon. Member for Edinburgh East’s contribution, but she said something that I agreed with—that public expectations are important. She is quite right that £144 is a figure that is out there. It is £144 for 35 years, for example, less a one-off adjustment for past contracting out. The communications problem is that nobody knows what contracting out is or whether they have contracted out or not. Getting the message across is therefore a challenge.

A review that did not have to report until the autumn of 2014 would mean that we could not even communicate with people when the Bill received Royal Assent, because we might change the system again. Just imagine that we sent letters out to people saying, “This is the new pensions system”, and then six months later we said, “Guess what, we’ve had a review and it’s changing again”. People would go mad. We need certainty, and all the calls for reviews after Royal Assent just delay the start and prolong the uncertainty. It is quite clear that we do not want to do that.

The hon. Lady rightly said that people get offended if you suggest that pensions are a benefit. Clause 1 uses the word “benefit” for a specific reason. The term “contributory benefit”, is from the legislative framework of the Social Security Contributions and Benefits Act 1992. Section 20 of that Act is entitled “Descriptions of contributory benefits”. Contributory benefits under part II of that Act are listed, and the sixth is retirement pensions. Even the National Insurance Act 1946 talked about the state pension as being a benefit. Of course, when we talk about a company pension scheme and what benefits one can get out of it, nobody is offended by that language. That is what we mean by benefit, and that is why we use the language.

Finally, the hon. Member for Edinburgh East said that we needed to do more for women, and I absolutely agree. In the first few years of the single-tier pension, 700,000 women will gain about £9 a week. We agree that that group have been poorly pensioned in the past and need effective action. That is the point, however; they do not need a review, a delay or more uncertainty. They want to know where they stand. Today’s pensioners—the women born between ’51 and ’53—have benefited from our triple lock and will continue to do so.

Pamela Nash (Labour, Airdrie and Shotts)

I sense that the Minister is about to sit down, so I will take this opportunity to return to something that he said at the start of his closing remarks. He pointed out that the new clause referred to women born post-’51, not only to those in the ’51 to ’53 bracket, on whom we are concentrating on this morning. Although our main concerns are about people in that bracket and those who are close to retirement, the proposals will affect all women—right down to those who are, like me, in their 20s—who will hopefully receive the STP as long no other changes are made. The Government’s figures show an eventual decrease, compared with the current system, in the average amount that a woman will receive each week. Those in their 20s will receive significantly less under the new system than they would under the current one.

Steve Webb (Liberal Democrat, Thornbury and Yate)

The hon. Lady has rightly declared her interest. In 40 or 50 years’ time—whatever the state pension age is by that time—state pension spending will be a bigger share of GDP than it is now, but not by as much as it would otherwise have been. We will have had 40-odd years of auto-enrolment and mandatory employer contributions to workplace pensions. We are making the state system more sustainable in the long term, and in parallel to that we are ensuring that people have decades’ worth of something else on top. That is probably the only credible combination. We could make more generous unfunded state pension promises but, frankly, I do not trust my grandchildren; I do not want to rely on their good will to pay me an unfunded state pension, because I do not think they will. They will be paying for my social care, my health care and all the rest of it. We have to ensure that people have not only a decent state foundation but a pension of their own on top.

Clause 1 looks relatively uncontentious, although we have the opportunity to divide on new clause 1 later if we wish. I do not believe that the group we have discussed are uniquely disadvantaged. There are positive and negative aspects to their position. They have benefited from our triple lock, which is something that we should be particularly proud of. I do not think that anybody would consider the complexity, delay and uncertainty that would result from the new clause to be a good thing.

Clause 2 - Entitlement to state pension at full or reduced rate

Steve Webb (Liberal Democrat, Thornbury and Yate)

Clauses 2 and 3 deal with what might be called the simple cases, which are people whose qualifying years are all after April 2016. In such cases, there will be no problems of transition or rights built up under the previous scheme. They are the “clean cases”—people whose working lives or qualifying years fall entirely within the new system. I cannot go quite so far as to say that if everybody started work after 2016 the Bill would need to contain only three clauses, but this is the easy bit.

Clause 2 states that to receive a pension, an individual must be over pension age, and that they must have 35 or more qualifying years to receive the full rate. I remind the Committee that the current state pension has two main strands: the basic pension payable for 30 years of contributions, and a state second pension—a state earnings-related pension scheme—in which an individual can build up rights over 49, 50 or more years. In merging those two into one pension, rather than sticking with 30 years, which would be very different from the current SERPS arrangements, or going up to 49 or 50-odd, which is the current STP arrangement, 35 years seems reasonable—I might call it a weighted average—in a world where people may work from the time they leave school until their late 60s. We will return to the 35-year issue later in our proceedings, and new clause 2 also deals with it. I will not go into the matter in great detail now, because we will cover at some length the transition to 35 for those who might be approaching pension age and expecting it to be 30.

Sheila Gilmore (Labour, Edinburgh East)

The Minister might be about to cover this, but to get this matter on the record will he explain more fully why at one point he seemed enthusiastic about the 30-year mark? What considerations changed that?

Steve Webb (Liberal Democrat, Thornbury and Yate)

As I think I mentioned in the oral evidence sessions, there are 1,000 different levers that can be pulled when designing a system such as this. We have an overall goal of cost neutrality—we will spend the same as we would have spent—but the starting level, the number of years, the minimum number of years, the uprating, the revaluation and so on can all be tweaked. The number of qualifying years is simply one of those parameters. In the context of people’s working lives lengthening, taking the average number of years needed for a full pension down substantially—it is 50-ish for a state second pension—would be going against the grain. That is the balance.

Briefly, on the move from 30 to 35 qualifying years, for 30 years a person gets a basic state pension— 110 quid a week or so. They might get some additional pension depending on the contributions they have made. For 35 years, they will get £144. If they have 30 years, 30 thirty-fifths of 144 is £123. In crude terms, when it becomes 35 years, if they have 30 years and they push through the new system and get 30 thirty-fifths, £123 is bigger than £110. Of course, there are complications. It depends on what SERPS they have, and whether they have contracted out.

Although it sounds as though the move from 30 to 35 years is a cut, first, it is 30 thirty-fifths of a higher number. Secondly, people can buy voluntary contributions if they want to, so if they have gaps they are able to build their entitlement up. The rules on that have been softened considerably, and we know that the true cost of a class 3 contribution ought to be about four times as much as it actually is; they are very good value. Therefore, people can top up to a bigger pension if they want to.

Thirdly—I will give more detail on this later—we are introducing something called a foundation amount in 2016. We work out a person’s pension on the old rules, we work out their pension on the new rules, and the foundation amount is the higher of those two numbers. If the 30 thirty-fifths plus SERPS is bigger than the 30 thirty-fifths with the relevant adjustment, the person will gets what they would have got under the 30 thirtieths rule. That is a protection built in to the change.

We think that 35 years allows people to have about 15 non-qualifying years. Bear in mind, it is 35 years of contributions or credits. It is not just paid work; it is caring, being at home with young children and active job searching. It is a comprehensive definition of what a person has to do to get the qualifying year. We think that 35 out of about 50 is the right balance. Of course, there will be the odd year when the person does not qualify—there are a range of things that people can be doing—but it seems about right to ask people to be doing something creditable or contributing for roughly two thirds of their adult life. When people do not have 35 years, the amount is reduced pro rata, as with the present system. That is what clause 2(2) does.

We think there should be a minimum amount of contribution. It is worth reminding the Committee that until April 2010 that was how it worked. Broadly speaking, a person needed a 25% contribution record. In general, women, pre-April 2010, needed 10 years. There is a symmetry here. At the request of the Work and Pensions Committee we put the figure of 10 years in the Bill. We do not intend to go beyond 10 years. Our future costings are premised on 10 years. We talked in the documents about seven to 10 years, but all our numbers are premised on 10 years.

In an increasingly global world—if that is not a tautology—people move around; they build up a year here and a year there. We do not want to have a contributory pension where, given that every year will be one 35th of £144, we end up paying significant amounts of money all over the world to people who have hardly ever been here. We are saying that people need 10 years in the system. Bear in mind that that 10 years includes six years that they can buy—in fact, they can buy more than that. Given that people can buy voluntary years, this measure is not particularly draconian. Practically everybody who spends their life here will get 10 years.

Subsections (4) and (5) simply explain what qualifying years are. Subsection (6) explains that for people with pre-2016 qualifying years, or people who paid the married woman’s stamp, there are separate rules, so I think that clause 2 sets out a simple case: 35 years for a full pension, reduced pro rata if someone does not have that, and a 10-year minimum. Those are all reasonable, measured features of the new scheme.

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

I shall have more to say on this matter when we come to clause 4 and new clause 2. The Minister used the example of paying into S2P for 49 or 50 years, and suggested that what is proposed was in some way a weighted average. I should be interested to hear him explain that in more detail. As to the minimum and the range of seven to 10 years, I feel that the Minister was hinting heavily that it will be 10 years, not seven, eight or nine. There is a sensible case for that, as he set out.

The Minister rightly mentioned what he described, I think, as softening the rules for the buying back of years. That is exactly how I read the Bill, too, and it is welcome. I think that communication will be an issue in encouraging people to buy back. Also, there will be those who will find it difficult. None the less, he is right to say that the rules have been softened.

I thought that the Minister was suggesting, or at least hinting, that the move from 30 years, which he seemed to favour, to 35, was driven by financial considerations, and I suggest that those played a significant part. He mentioned the previous Government several times. Bringing down the number of years that a woman needed to get a full state pension from 44 to 30 was a significant policy shift, as was bringing down those needed by a man from 39 to 30. That was done in the spirit of trying to make the state pension universal and inclusive. There is a case for putting the number of years back up to 35, given increasing longevity.

We support the clause, but I shall have more to say on clause 4, particularly about those who are close to retirement who understood that they needed 30 years, and now find that they will need 35 to get the full state pension, but will not have time to do it.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I am grateful for the hon. Gentleman’s support for the clause.

My point about a weighted average is that at the moment, a typical pension on retirement for a woman—for example, the cohort we were just talking about—is £125. The £110, or a large part of it, is based on a 30-year rule. The extra bit is based on a 50-year rule. Obviously that extra bit, the state second pension, is accruing and getting bigger and bigger, so over time the state second pension bit of people’s pensions would otherwise have been a bigger proportion.

All I am saying is that we are bringing together a 30-year relatively large chunk, and a 50-ish-year smaller chunk, but one that is getting bigger. So, in a sense, if we had split the difference and said 40 years, people would have said, “That’s not fair,” because most of the pension is currently basic pension; so 35 years is a kind of weighted average. That is the underlying intuition I was using.

The hon. Gentleman was right about communication. The dilemma is that we cannot communicate with people until Parliament has decided what the rules are. However, that does not mean we are doing nothing. We have already put details of our communications plans in the Library. We are talking to those bodies who talk to people about pensions, such as Age UK, the Pensions Advisory Service and the Money Advice Service, and those that have websites for financial advice. We are using focus groups to test what language about the proposals makes sense to people, and what confuses them, so a lot of work is going on.

Assuming Royal Assent is given next Easter and there will be no reviews to do after that, we have two years before the start in which to communicate with people. We are thinking in the medium term about such things as online access and statements, so that, because the new system is simpler, what people will get will be clearer to them. I entirely take the hon. Gentleman’s point about communication, and there is plenty of that to come.

Clause 3 - Full and reduced rates of state pension

Steve Webb (Liberal Democrat, Thornbury and Yate)

The clause does what it says on the tin. The full rate of the state pension is simply whatever is specified as the weekly rate, which we have said will be more than the level of the guaranteed credit. The reduced rate—the clause defines the terms in the Bill—is simply one thirty-fifth of the full rate multiplied by the number of qualifying years. Subsection (3) simply states that once we have set the initial rate—and obviously there are uprating provisions elsewhere in the Bill—we cannot use the regulations again to reduce that rate. We will set an initial rate for April 2016, which I assume will be set no later than autumn 2015, and once that is in place we cannot use the powers again to reduce the rate. Clause 3 follows logically from clause 2.

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

I am satisfied with the Minister’s explanation. The issues, particularly what the reduced rate means for those who do not have time to meet the 35-year rule, will come into greater focus when we consider clause 4.

Clause 4 - Entitlement to state pension at transitional rate

Martin Caton (Labour, Gower)

With this it will be convenient to discuss new clause 2—Review of phasing the transition of a 35-year full pension requirement via an interim requirement of 30 years—

‘The Government shall conduct a review to determine the costs and benefits of phasing the transition to a 35-year full pension requirement via an interim requirement of 30 years. Such a review shall be conducted within six months of Royal Assent of this Act and a report thereof laid before Parliament.’.

Steve Webb (Liberal Democrat, Thornbury and Yate)

This is where the fun starts. [ Interruption. ] I am glad I cannot see the faces behind me, judging by the faces opposite.

We have to do two things. We want to get to the new system as fast as we can, but we want to honour the past, and transition is the most difficult bit of what we have had to do. How do we respect people’s expectations and honour the contributions they have paid in the past fairly without running the system for another 60-odd years? Obviously, one of the issues with pension provision is that people have their own accrued pension rights. For example, we could have someone with, say, 50 years in the current system, and then there are survivor’s rights for widows and widowers, which can go on for another 20 or 30 years. The danger is that people’s own rights and expectations of rights in respect of others can live for 80 years or more, and the idea that we would introduce a system in 2016 that still has the traces of the old system in 2096 is absurd.

A balance has to be struck. There has to be a way of getting from the old system to the new system. The simplest, cleanest way would have been to stop with clauses 2 and 3 by saying, “Post-2016, it is 35ths—get on with it.” But that would have been simply unfair in a number of ways. First, it would have been unfair to people who have already built up more than £144. There are plenty of people who retire on such pensions. The typical man in 2016 will retire on a pension of more than £144, and it would not be right, particularly for people coming up to pension age, to say, “Guess what? You thought you were going to get £160—you have had a statement from us with £160 on it—but we have changed our mind. It is £144.” We had to consider that transition, and clauses 4 and 5, and the related schedule 1, explain how we do that.

In 2016, we will essentially consider two numbers, what people have built up so far under the current rules and what they would get under the single tier, and we will take the higher of those two numbers. That is called the “foundation amount” elsewhere in the Bill. Everyone will have a foundation amount and, once they have that number in 2016, years thereafter will simply build up at one thirty-fifth of £144—so, £4.11 a week—until they reach £144. Although working out that foundation number is a bit messy, once it has been done anybody will be able to find out what their foundation number is—they have the foundation number in the bank—and extra years simply add a fixed sum until they reach the flat-rate figure.

I do not think I am betraying any confidences by saying that the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East asked me, “When does this get simple?” The transition process is not simple, but my argument is that, particularly for people in the first half of their working life, it is pretty clear: if people do their 35 years, they will get £144. Relatively few people will not be in that position. That is the basic proposition.

There are special arrangements for certain groups of people, and we will consider those who paid the married woman’s stamp later because they are addressed in separate clauses. The first group of people for whom special rules are needed are those who already have more than £144. What we will do is take their 2016 foundation amount and, if it is more than £144, give them that as a foundation amount. They cannot add to it. Post-2016 contributions do not add to the figure, but they will be honoured.

Let us say that someone has built up £160. The single tier is £144, and there will be an extra £16 of what is called a protected payment. The indexation rules are that the £144 gets earnings-linked—at least—or triple-locked, and the £16 gets CPI-ed, which is what would happen anyway to a SERPS pension; it is analogous to the current indexation in-payment for a SERPS pension. That is for people who have built up more than £144.

What happens to the people who have been contracted out? That is the other big, tricky one. Again, an option would be to say, “2016 is a sunlit upland. We forget history and contracting out, and you just get your gross amount that you have built up, and you build on that.” I would have loved to have done that, but it would have been totally unfair. If someone has spent their life paying full national insurance, and their neighbour has spent their life paying contracted-out national insurance, and I come along and say, “You can have a full pension anyway”, people would be a bit cross.

We have said, therefore, that in 2016 we will make a one-off adjustment for past contracting out. We will take away what we call the rebate-derived amount, which is sort of like the existing contracted-out deduction with a tweak. The basic idea is that we work out someone’s 2016 foundation amount and we make a one-off deduction for the periods of their life when they paid less national insurance than their neighbour. That seems to us the only fair way to do it.

If we adjusted that and said that that deduction—the rebate-derived amount—was like a stain on their record for the rest of their life, no one would get £144, because almost everyone has been contracted out for at least one year. Although contracting out these days is mainly a public sector phenomenon, historically it was not—more people were contracted out in the private sector than in the public sector. If someone worked for a big corporate, they were in a contracted-out pension scheme. As pensions have such a long history, even though now most contracted-out employees are in the public sector, historically most contracted-out employees were in the private sector.

When we reach 2016, what we do not want to do is leave that contracted-out deduction in the system for decades to come. Otherwise, it would take for ever for most people to get £144 and we would have failed. There is a trade-off: we cannot ignore contracting out, but we want to get it out of the system as fast as we can.

We have invented what we call “something for something”, which means we work out the foundation amount in 2016 and net off the deduction for past contracting out, but allow people to work it off through subsequent years of work. If someone has been contracted out in the past, and they get less than the full amount in 2016, if they continue to work post-2016, they will build up towards the full £144. They will not get the full £144 without additional years post-2016, but they can build up towards it. That seems like the right balance. We could not ignore contracting out, but nor could we keep it in the system for another half a century, so we have allowed it to be worked out of the system. That strikes us as the right balance.

That is the gist of clause 4. It will require people to have reached pensionable age, have the minimum number of years and have at least one year under the old system. It repeats the 10-year-minimum arrangement. Post-commencement years are those after 2016, while pre-commencement years are those under the 1978-2016 system or the pre-1978 system. The two will be added together.

We will go into all that in a lot more detail under schedule 1, but having given the headlines, I will enable the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East to explain his views on new clause 2 before responding.

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

I would like to say a little about clause 4 before moving on to new clause 2; the two are of course related.

The Minister rightly suggested that the transitional arrangements are the most difficult part of the process. He is keen to get the balance right between moving to a new system and, in his words, “honouring the past”. He did not betray any confidence when he mentioned my question about when the system will become simpler. He has great knowledge of the state pension system, but listening to him, one wonders whether the system will ever become simple. He lost me at “rebate-derived…” and I suspect that I was not the only one.

The transitional arrangements are critical and the devil is in the detail. The Minister noted that a typical man will retire with more than £144 under the current system. I am not sure whether he mentioned this, but one aspect of the Bill that enables it to be cost-neutral is that anything one has above £144 and any rights accrued will be uprated by the consumer prices index. Although rights are protected above £144 for those who have accrued them before April 2016, anything one has saved above £144 will be indexed by CPI, not in line with the triple lock. However, as the Minister famously and honestly pointed out to the Financial Times last week or the week before—I am losing track—the triple lock is not guaranteed by either governing party beyond 2015. The situation I have outlined is therefore perhaps not as big an issue as it would be if the governing parties were committed to the triple lock beyond 2015.

The Minister focused largely on those who are contracted out, and he rightly observed that something had to be done about them. He talked about a “something for something” deal. He said that we could not ignore contracted-out pension savers and that there had to be a way to bring them into the system. He has done that in what some might describe as a generous way, allowing people to buy back into the system. There will certainly be individuals who opted out of the state second pension, put their money elsewhere and now find they can buy back into the state system and get to £144. That will be welcomed by people in that position.

It is worth mentioning that the abolition of the state second pension is central to the Bill. Everyone who was saving into it, and, indeed, everyone who was not contracted out—that is, of course, the vast majority who were contracted in—is a notional loser under the new system, in so far as one can no longer get above £144. The Minister mentioned in passing that the sum would be capped at £144, and, from April 2016, no one can save more than £144. There will therefore be significant notional losers, which is inevitable. There will also be actual, substantive losers, in so far as there is an expectation that one’s pension savings will be indexed to the triple lock, but people find that anything above £144 is CPI-ed.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I am slightly confused. The hon. Gentleman seems to be implying that these new indexation arrangements are somehow less generous. At the moment, people get £110 at least earnings indexed, and the balanced CPI-ed. We are proposing £144 at least earnings indexed, and the balance CPI-ed. Surely that is unambiguously more generous indexation.

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

That, of course, depends on how the indexation rules proceed. It will be noted that there has been much talk about the triple lock in relation to the Bill—[ Interruption. ] If the hon. Member for Burton wants to intervene, I will be delighted to let him. I cannot hear what he says when he comments from the second row, but that might be my hearing. He will either have to intervene or shout louder—one or the other.

The indexation issue is a thorny one. The point I was trying to make to the Minister, for the Committee’s benefit, is that we must be aware of the ending of the state second pension, which means that those who contracted into the system and who could save more than £144 will no longer be able to. One aspect of the Bill that demands some reflection—I do not say it is a negative—is that it caps the state pension that anyone can receive at £144, which takes us on to the issue of how people will make up the extra provision they will not be able to get from the state second pension. That was the point I was trying to make, albeit in a perhaps rather muddy fashion.

The issue of simplicity is very important, and the transitional arrangements bring that to the fore. We know that pensions are complicated—by definition, to a degree. We all have a role to play in trying to simplify them. The Minister is absolutely right that there is a tension between moving to the new system and getting things clear and simplified, and honouring past accruals.

I do not think that the Minister could do anything other than honour past accruals as far as is humanly possible. However, we know that by doing so we will not have a simplified system for quite some time—two systems will run in parallel for roughly 30 years. By the time my hon. Friend the Member for Airdrie and Shotts draws her pension, the system will, hopefully, be crystal clear and simple, but I am afraid that many of us will be long gone before it is simplified. I hope not but, coming from a part of the world where people have a tendency to go off their mortal coil rather early, one does not want to take anything for granted.

I come now to new clause 2, which relates to this matter. The thorniest issue in these transitional arrangements involves those close to retirement who had an expectation of needing 30 years. They were told that they needed 30 years. [Interruption.] If anyone wants to intervene, I will be delighted to let them. Some people had planned on the basis of needing 30 years, and they now find that they need 35 years.

The Minister mentioned the fact that there is, of course, a foundation amount, and I will talk about its calculation in a moment. The foundation amount will be whatever someone has accrued so far, plus an accrual of £135 or £144 per annum going forward. It is, of course, true that there is an issue for most people— I was about to say psychologists and sociologists, but I was worried that the Minister would again accuse me of being an academic.

As a matter of common sense, people tend to take their view of the world from those around them. Consider the case of someone who has been saving on the basis of needing 30 years and is now too close to retirement to be able to work for 35 years, and who then finds that a friend who is just a couple of years older is able to get £144. That person will be rather perturbed at that situation. That is inevitable; it is human nature.

The Minister pointed out that there will be difficulties with any shift in the system. I think he described working out the foundation amount as “a bit messy”. I would be delighted to hear the Minister say a little more about that messy calculation, which made me think of a review.

Regarding the women born in 1951 to 1953, the Minister said to my hon. Friend the Member for Edinburgh East that she obviously had not been anywhere near a Government computer. If the Minister does not have overwhelming confidence in Government computers, I have some concern that the calculation of the foundation amount for tens of millions of people under this new state pension could be something to keep an eye on. I hope the Minister will be able to assure me and the Committee that Government computer systems are high tech, tip-top and ready to go in calculating these rather “messy” foundation amounts, as he described them.

I turn now to new clause 2. The situation is that if a person is close to retirement, they do not have time to get from 30 to 35 years, and so find that they will not be able to get to £144. What we suggest in new clause 2—

Andrew Griffiths (Conservative, Burton)

I am a little confused about the point the hon. Gentleman is trying to make. As I understand it, those receiving 30 thirty-fifths of the bigger amount of £144 will be better off than the would have been under the old system. Is it not the case that, rather than there being winners and losers, there will actually be winners and winners?

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

I see that I finally managed to entice the hon. Gentleman to make his contribution. I am sorry he is confused. The point I am trying to make is that much of the Minister’s and the Government’s focus is on encouraging people to make up the difference and get up to 35 years. In a number of cases, members of this group are not in a position to be able to get up to 35 years. [Interruption.] I am having trouble hearing the hon. Gentleman. If he wants to come back in, I will be delighted.

Andrew Griffiths (Conservative, Burton)

I will try to speak more clearly; my broad Dudley accent must be confusing the hon. Gentleman. The point I tried to make is that even those who cannot make up the full 35 years and are left at 30 thirty-fifths will be better off than under the old system.

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

I am the last person—

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

At the end of this morning’s sitting, I was beginning to reply to the hon. Member for Dudley—[Hon. Members: “Burton.”]—the hon. Member for Burton who is from Dudley. The hon. Gentleman was intervening from a sedentary position and I found it difficult to hear him, because of my blocked nose. We left it with the hon. Gentleman suggesting that the reason was his thick, Dudley accent, but I am the last person in the world to pass comment on someone’s thick accent. It was more the blocked-up nature of my nose and ears.

We were beginning to get into some of the detail of new clause 2, tabled by the Opposition, on some of the implications of the transitional arrangements. The Minister had rightly and importantly emphasised that the transitional arrangements are the most difficult part of the state pension aspects of the Bill. It is important to get the balance right between moving to a new system and, to use the Minister’s term, honouring the past. There is an issue with those who are close to retirement and had a legitimate expectation that they would need 30 years of contributions.

Steve Webb (Liberal Democrat, Thornbury and Yate)

The hon. Gentleman has used that phrase on a number of occasions and I wish he would finish the sentence. On needing 30 years, the thing people need 30 years for is different from the thing they need 35 years for. So we are not asking them for a different number of years for the same thing, but for something else. Does he agree?

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

Yes, I agree with the Minister. It is important to add to that, however, which the hon. Member for Burton did not do. The danger is that we will talk about this purely in terms of moving from the basic state pension to the flat-rate state pension. We have to be aware of the ending of the second state pension. There can be people who were thinking about their retirement, and planning for it, on the basis of the flat state pension and S2P. People might fall into the group of those who had a legitimate expectation of 30-year, flat-rate state pension, as well as a significant second state pension accrual.

The Minister is aware of what appears to be a political consensus, which emerged in part from the 2011 discussions, on the importance of giving people time to plan. Ten years’ notice seems to be the general feeling regarding changes to individual state pension age. The new clause asks that

“The Government shall conduct a review to determine the costs and benefits of phasing the transition to a 35-year full pension requirement via an interim requirement of 30 years. Such a review shall be conducted within six months of Royal Assent of this Act and a report thereof laid before Parliament.”

My hon. Friend the Member for Edinburgh East referred to earlier discussions with the Pensions Minister, I think on the Select Committee. My hon. Friend intimated that the Minister was, at that stage, keen on 30 years of contributions to be included in any Act. We have now moved to 35, and the danger is that people who have planned for 30 years and are close to retirement—they have had notification in the past that 30 years is what they need to get a full state pension—find that they now need 35 years.

May we bear down on that a little? Clause 2 increases the number of national insurance contributions qualifying years from 30 for a basic state pension to 35, and introduces that minimum number of qualifying years, which the Minister has pretty clearly indicated will be 10 years, rather than between seven and 10. We accept that the impact on most people of the increase in qualifying years will be limited. The Minister set out a fair case regarding the fact that individuals are going to be working longer, so increasing the qualifying years is not in itself necessarily a bad thing. However, it is not clear to me that the Government have published an impact assessment on the group who get caught in the jump from 30 years to 35 years. I know that the Government have done that for other groups, including the 700,000 women affected.

I just want to probe my understanding of the issue with the Minister. When he gave evidence to the Select Committee on Work and Pensions, he talked about the change from 30 years to 35 years saving about £1 billion. If that figure is right, will he say how the £1 billion is calculated, what period it covers, and what percentage of the total pension spend that would be over the years for which he has made that calculation? If £1 billion is accurate, which I am sure it is—it depends on what it is accurate in terms of; it is only relevant insofar as it is £1 billion of what—that is a significant saving, but there is a general issue with the Bill.

One does not complain about the Government wishing to focus on the Bill’s positive aspects. However, the Minister previously suggested a reluctance to see the Opposition’s job as asking questions and probing the legislation, but I will continue down that route and say that there is a wider issue that is peripheral in terms of the transition from 30 years to 35 years. I have been very clear about the winners and losers. When the pensions White Paper was published in January, it was received by the media, then filtered downwards, that everyone would get £144. It is important, from the point of view of the Government and the Opposition, that we have clarity on that point. I am interested to hear whether the Minister thinks—he mentioned 30 years for something, and 35 years for something else—people will lose out in the shift to 35 years. In saying that, I accept that the state pension age is set to rise, and there is no doubt that increasing the number of contributions somewhat in line with that is sensible.

At this point, I want to comment on the transitional arrangements; the Minister will no doubt come to this issue in more detail. I also recognise the steps in the Bill that, it is fair to say, continue what the previous Government were doing on recognising other forms of contribution beyond workplace contribution. I am talking about carers and stay-at-home mothers, and that is to be welcomed. Of course, under the increase from 30 years to 35 years, it is fair to say that a small number of people will not have enough time to make up the required 35 years, as they are too close to retiring. That is the cohort on which the new clause, which asks for the Government to review the issue, focuses.

In recent years, people in that cohort may have been passively or actively informed of the requirement for a full state pension of 30 years of contributions. I say passively—through correspondence from the Department for Work and Pensions informing them that they only required 30 years, and that is something we have to take cognisance of. Reducing the years of contributions from 44 years to 30 years and from 39 years to 30 years was a pretty radical shift undertaken by the previous Government. It changed the pensions expectations for a substantial number of people. Again, I take the Minister’s point that such a reform will mean that there are inevitably losers as well as winners. The question for him is whether he thinks any of it will result in unfair losers, to use his terminology.

I think I am right in saying that political consensus has emerged about 10 years’ notice. The Turner commission said seven years—or was it 10? Either way, following the Pensions Act 2011, 10 years is now the consensus on the time that people need to prepare. I suspect that we will get more into that issue when we come to the clauses that refer to the state pension age.

We would like the Government to review the circumstances of those due to retire prior to 6 April 2021. To take up the point of the hon. Member for Dudley—[Hon. Members: “ Burton”.] I now have Dudley on the brain, which I am sure is no bad thing.

Richard Graham (Conservative, Gloucester)

I hope I have helped the shadow Minister through his difficulty with identifying the MP for Dudley or for Burton. His earlier comments about the Bill’s general aims, he was half endorsing those aims and half criticising the way in which the Pensions Minister had presented the positive side of them. On the pensions system, does the hon. Gentleman not agree that both his constituents and mine share the goals of simplification, clarification and a practical move towards making sure that saving really pays? That ultimately is what the Bill is all about and what our constituents want to hear. Will he endorse those goals?

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

I am struck by what the hon. Gentleman says—this issue goes back to Second Reading—as well as by some of the Minister’s remarks about the Government’s expectations of the Opposition. The official Opposition are taking a very constructive approach to the Bill. I am on the record already today as saying that the move to a flat-rate state pension is a good idea. However, we would not be doing our constitutional duty if we did not probe the way in which the Bill will impact upon UK citizens. Our job is to try to draw the Government out on the losers as well as the winners.

I said a moment ago that one does not complain about the Government focusing on the positive aspects of the Bill; indeed, if we compared the approach to this policy with that to most others we would find an unusual degree of constructive consensus. It is unfair—to use a term much deployed this morning, as it no doubt will be this afternoon—to expect the Opposition not to raise questions about legislation, especially since we are on the record as saying that there is much to be said for moving to a flat-rate state pension.

The hon. Member for Gloucester mentioned simplicity, clarity and incentive to save. Simplicity is a good thing, and moving to a flat-rate state pension will make things simpler—that is one reason why we think it is a good idea—but the issue is when it becomes simpler. We have to be clear on that; we will have two systems running in parallel for a significant number of years—probably a generation if we define that as around 30 to 40 years—and it is the Opposition’s job to say to the Government, “Yes, simplicity is an excellent idea, but when will the system become simpler?” The Pensions Minister, I know, is well aware of that issue, and again, one does not criticise him for not talking in detail about the two systems running in parallel: his job is to focus on the thrust of the reform, which he endorses. However, it is the Opposition’s job to lay out some of the potential pitfalls and imperfections in the legislation. Academia was mentioned a while ago in our debates; I taught a little constitutional history and I understand that the official Opposition’s role is to scrutinise legislation and, I hope, to make it better.

The incentive to save is a significant issue: it is the whole logic on which the flat-rate state pension proceeds. It is in the Bill and the Minister and others have referred to it repeatedly. We will come on to that issue as we go forward with the Bill, but I will raise again the question I raised on Second Reading: saving into what? To give the Minister credit, he is starting to move on some of the issues regarding making auto-enrolment work for everyone, which the Opposition, many consumer groups and others have been encouraging him to do.

Richard Graham (Conservative, Gloucester)

The hon. Gentleman mentions his concern that simplification does not come immediately because there will be two parallel systems running. What alternative would he propose to that?

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

Since we think that this system is a good idea, we are not suggesting that the Minister should change track for an alternative. It is our job, however, to point out that, when talking about simplicity, which is something that we all favour, the system will probably not become simpler for a generation.

There seems to be a philosophical difference between me and the hon. Member for Gloucester: I do not see the Opposition’s efforts to try to improve legislation by pointing out imperfections in the Bill as criticism. That is not the same as us saying that the Government should not proceed with that part of the Bill; it is the Opposition’s job to dig down into the detail. If that is not our job, what is the point in us being here? We are on record as saying that the move to the flat-rate system is a good idea, but it is incumbent on us, and all members of the Committee, to tease out the Bill’s implications.

Andrew Griffiths (Conservative, Burton)

Will the hon. Gentleman give way?

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

I would be delighted to give way to the hon. Member for Burton.

Andrew Griffiths (Conservative, Burton)

I shall do my level best to speak more clearly this afternoon. On the hon. Gentleman putting things on the record, both this morning and this afternoon he has made considerable play in raising his concerns about those people with 30 years of entitlement who will therefore not get the full 35 years’ worth. There is obviously a substantial cost in rolling down the single-tier pension to those people. If he thinks that that is such a problem, will he confirm whether a future Labour Government would make the single-tier pension available to everybody with 30 years’ entitlement?

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

The hon. Gentleman will be delighted to know that before he returned to his place I cleared him of the charge of having a thick accent.

Andrew Griffiths (Conservative, Burton)

Just being thick.

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

I would be the last person to accuse anyone of having a strong accent. Let me take on the hon. Gentleman’s question. If he reads our new clause, as I am sure he has, he will see that it suggests that the Government review this matter. On who the losers will be, will the Minister say whether I am wrong in saying that there will be losers?

This morning, we finished with the hon. Member for Burton saying that people may not get the full entitlement for 35 years’ contribution, but they will get 30 years plus 30 thirty-fifths. Before he returned, I said to the Minister that there is the issue of the interaction with the state second pension, which is to be abolished. As the Minister said in his opening remarks, the transitional arrangements are the grittiest and I would be interested to hear his calculations on whether there will be losers from the shift to 35 years.

I often find that Government Members are keen to tease out Labour’s manifesto for the general election. I understand their enthusiasm, because that will be a very exciting and important document, but I am afraid that I cannot go further than I have so far in fulfilling those desires.

Oliver Colvile (Conservative, Plymouth, Sutton and Devonport)

Does not the hon. Gentleman recognise that it is not just about Government Members finding out what might be in the manifesto, but about the people out there too, because they need some certainty on will happen. One of the big problems with the whole business of pensions has been that it has always been up in the air and every time that it seems that a position has been arrived at, it changes.

Anne Main (Conservative, St Albans)

Before I call Mr McClymont, I must ask him to confine his comments to the clause we are discussing, rather than what he would like to happen or the Labour party manifesto.

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

Thank you for that guidance, Mrs Main. I was going to suggest to the hon. Gentleman that this Committee is for scrutinising the Bill before us. If you will indulge me slightly, Mrs Main, I must say I do not have people coming up to me on the street demanding to know what will be in any party’s manifesto at the next election. We are some way away from a general election and our job here is to scrutinise the Bill.

There is a significant degree of consensus in the Committee, yet one feels that the Government would prefer it if we just endorsed everything on the Order Paper without scrutinising it. I do not think that that is good for legislation or good for government.

Christopher Pincher (Conservative, Tamworth)

The hon. Gentleman is quite right that all legislation is imperfect and that the duty of the Opposition is to try to make it less so, and that is presumably the point of his new clause. Given, however, that he is asking the Government to conduct a review to determine the cost and benefits of phasing the transition, which will take time and cost money, he must have some idea of what the costs and benefits might be. Otherwise, he is asking the Government to undertake a review about which he understands nothing at all.

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

I thank the hon. Gentleman for that contribution. When I referred to imperfections in legislation, I was trying to draw out the Burkean part of the Conservative mind—I cannot speak for the Liberal Democrat Minister. I know that one of her colleagues, the hon. Member for Hereford and South Herefordshire (Jesse Norman), has written a book that I think should be subtitled “Reflections on the Thatcherite Revolution”. Even on a Bill where there is significant consensus, however, it is important to tease out the implications.

I will try to answer the question from the hon. Member for Tamworth—which was where, of course, Peel made his famous declaration. I know about costs and benefits of a review. Our new clause states that such a review should be conducted

“within six months of Royal Assent”.

The Minister’s response to that, in respect of the new clause 1 proposal, was that it would mean six months. I am not privy to how long a review would take—I can only take the Minister’s word on it—but his earlier answer was six months. Is it beyond the wit of man? It could be reported to the House after six months, but the review would not necessarily have to take six months. We are just trying to dig down into the detail. He said that transitional arrangements were tricky. I would say it is the most granular bit of the Bill.

Christopher Pincher (Conservative, Tamworth)

The hon. Gentleman is at liberty to ask the Government to undertake a review, but he must agree that his case would be much stronger if he could explain why that review should take place and why there might be costs and benefits to the transition he is after. If he cannot explain why he wants the review, why should we have one?

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

We know that, on the Library’s calculations, by going to 35 years, just under 100,000 people a year will be less eligible for the new state pension. That means that fewer people will be eligible for the full state pension than under the current system. Just under 100,000 people is not an insignificant number. We know as well that for every year a person is not in the system, they lose £4.11 from their retirement income.

On contributions, we have the issue of the 10-year period. We have not yet explored the Minister’s intention to opt for a 10-year period, but my view is straightforward: the Opposition believe that there will be losers in the shift from 30 to 35 years. He uses the term “unfair losers” and talks about people not being “uniquely disadvantaged”. The question is whether expectations of what one gets in retirement are such that one needs sufficient notice of changes. We called for this review and put down this new clause purely to ask the Government to dig a bit deeper—it is no more complicated than that.

The calculations are pretty complicated, and it would be a useful bit of public policy to clarify who will lose and by how much. That is analogous to the previous conversation about the ’51 to ’53 group, in that the Minister has done an impact assessment on the 700,000 women and concluded that the vast majority would be better off and that those who would be were worse off—about 70,000—would be worse off by an average of £6 a week. [Interruption.]He shakes his head; if he wants to clarify, I would be happy to give way.

Steve Webb (Liberal Democrat, Thornbury and Yate)

Just to be clear, the median between the two groups is £125 against £131, so taking the whole group before and the whole group after, the difference is £6. That figure is not the average loss of the people who lose.

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

I stand corrected. It is the median rather than the average, which is a better index of bunching around the most prominent group in that range. The issue remains, however: how much is lost by the biggest losers? It is a big issue not because it means the Bill should be changed, but because the median and the average can disguise pretty significant losses, often for the people who can least afford it. I take the Minister’s point. He is right that in a Bill of this complexity, such things will inevitably happen, but nevertheless clarity would be useful.

I shall finish on the point made by the hon. Member for Tamworth. I see it as the Government’s job to dig down and provide the detail on the potential losers. The Government did an impact assessment on the 700,000 women, and I do not think it unfair to ask them to do one on the jump from 30 to 35 years. I think the Minister would have preferred it had 30 years remained the qualifying period for a full state pension, but financial and other circumstances have led us towards 35 years. That in itself is not a reason to oppose the Bill. There are reasons to think that a move upwards in years is plausible, given the rise in the state pension age, but I do not think that to ask for such a review is destructive or against the spirit of constructive engagement with the Bill.

Sheila Gilmore (Labour, Edinburgh East)

It is a pleasure to serve under your chairmanship, Mrs Main.

We need to recall that the initial reason, in 2010, for moving to 30 years was the understanding that groups of people—men and women—found it difficult to create a full contribution record. Despite the fact that various types of credits had been available for a number of years, there were still people who were not applying for them—perhaps because they were not aware of them or not in a position at the time to obtain them—and were therefore arriving at state pension age without having built up a full entitlement.

That becomes even more important when we get to the point that I think, in principle, is the right one: that we expect individuals to build up their own pension contributions. In the original scheme of things, the fall-back position, particularly for women with a much interrupted and perhaps limited working life, was that they relied on their husbands’ contributions, and therefore that it did not matter so much. We have been in a hybrid stage for some years, with many women building up pensions in their own right greater than anything they could have got through their partners’ contributions, but with some still not doing that.

Our new clause tries to dig down on the number of years. Knowing about the changes to the contribution conditions—for example, that a woman no longer needed to have contributions or credits for 39 years, and that this period had been reduced to 30 years—some people, if they were a little older at the time, reasonably assumed that for them the figure would be 30 years. A constituent who has been in touch with me is an example of someone in that position. Having worked all her life, she stopped work in her early 50s because of ill health, by which point she had not worked for the required 39 years. Shortly afterwards, the contribution system was changed, and she understood the new requirement to be 30 years, which she had achieved. She retired early from her job because of her health, and was allowed to take a reduced pension at an early age on medical grounds, as people are often allowed to do. She will reach pension age post-2016, and she is concerned that it will be extremely difficult, if not impossible, for her to make up 35 years.

My constituent is aware of the suggestion that it might be possible to buy extra years. At the moment, however, I understand that people are being advised not to do so until the situation is clearer, because it might be risky to buy additional years now in case things change. She is still waiting to hear about that. I think the Minister has said in similar situations that people should be able to get credits, but as I understand it—I may be misunderstanding the situation—I cannot see any way for my constituent to do so. She will not be going back to work, so she cannot work to make up the extra years. I think that she could get credits if she were to claim employment and support allowance and go through the entire assessment process, but she would not get any benefit because she has the early retirement pension.

Steve Webb (Liberal Democrat, Thornbury and Yate)

The hon. Lady is obviously very knowledgeable about these matters, but I am baffled by the assumption that her constituent needs somehow to make something up. In 2016, we will work out what she has built up so far under the current rules, compare it with what she would get under the new rules and give her whichever of those two numbers is the higher. Why does the hon. Lady assume that her constituent will have to make anything up? Why does she not just do nothing and get what she was going to get?

Sheila Gilmore (Labour, Edinburgh East)

People in such situations feel they will not achieve the full pension they might have achieved under the new system, because it will be difficult to find the extra years. When my constituent inquired, she was told that she could buy extra years, which would suggest that the DWP considers it appropriate for people to buy extra years in order to reach 35. Some people in that situation might have made other arrangements if they had known that things would change again. Is the Minister confident that nobody will be disadvantaged? It is still not clear why he thinks it unnecessary to do a bit more work and dig into this.

As a result of their circumstances, some people may end up without a full contribution record. I hope the Minister will look at the situation of those who have worked in very low-earning jobs. I have constituents who work in two or more short-hour jobs that are under the level at which contributions are made, and they find that they are not building up a contribution record towards a state pension even though they are, in some cases, working a fair number of hours in a week. If their different employments were combined, they would qualify for the required number of years, but they may be missing years out because they are in short-term and variable employment.

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

Is there not an issue of expectations here? The Minister referred to the foundation amount, but is the problem not one of communication at the introduction of the White Paper? Does my hon. Friend agree that when the Government announced the proposals, the impression was given—no doubt inadvertently—that the new flat-rate state pension was a winner for everyone and that everyone would get £144, which was so much better than the basic state pension? Is it not natural for people to assume that everyone else is getting £144 while they are not? In such a situation, the problem is expectations and relative feelings of loss.

Sheila Gilmore (Labour, Edinburgh East)

There are certainly issues about expectations, but there is also an issue for people, such as the lady I have described, who will have 30 years of contributions and who would, therefore, have been entitled to receive the full amount if the system had not changed. My constituent has been given to understand that better arrangements are available for many people, and she would like the opportunity to make up the extra years. Now that ill health prevents her from working, and given that there are, in any case, only a limited number of years ahead of her, she is not clear how she can do so. She wants to be able to share in what the Government describe as a much better pension arrangement.

If arrangements were introduced to help the transitional group of people who start off with a worse pension than they might otherwise be able to obtain, it would stand them in good stead for the rest of their retirement. We are back to the position where we are effectively saying to people, “Many other people in your cohort will be entitled to a higher level of non-means-tested basic pension, but because of the position you find yourself in, you won’t.”

Returning to the question of people in short-hours employment, I hope the Minister will say that he is willing to look at a way of helping those with low earnings who do a number of different jobs. The number of people who do not pay national insurance contributions because their earnings are too low is already worryingly high, and it may increase if the pattern of work and jobs keeps changing. I met a gentleman recently who worked part time for a supermarket, which was offering him just enough hours to keep his earnings below the level at which he and his employer would pay national insurance contributions. For reasons unrelated to our debate, he inquired about working extra hours but the employer said they were not available and the business would not sustain it.

There is an advantage to an employer if they do not have to pay national insurance contributions in respect of an employee. Someone may be in that position for many years, and they may end up without credits. They may receive credits if they are also a carer or if they receive certain benefits, but some people will not fall into those categories. Given that people may have periods in their lives when they work full time or nearer to full time, they may have no problem in reaching the 35-year contribution threshold for a full state pension. However, it is not unreasonable that we look at this matter carefully to make sure that no groups are disadvantaged as a result of the changes being made, and I hope the Minister is prepared to do that. In particular, I am interested to hear his views on that group of people who may be outwith the pension system because of the work they do.

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

The Prime Minister and the Deputy Prime Minister—my remarks are certainly not a criticism of the Pensions Minister—often say that the new system will benefit women who have not done well out of the pension system historically. That has driven expectations of everyone benefiting and, more importantly, everyone getting the new flat-rate state pension. Does my hon. Friend agree that it would be helpful if the Government dug down and provided some clarity on what is happening for those people who will not have the time to make up their contributions?

Sheila Gilmore (Labour, Edinburgh East)

However good a Minister thinks a piece of legislation is, and however unlikely they think it is that there will be any losers, it is important that we be absolutely satisfied that that is so. Similarly, we should be certain that nothing can be done—only a minor adjustment might be needed—to make up the extra years we are debating.

The pattern of work in our economy has changed substantially for a number of reasons, with people working variable or low hours, and I am not sure that it will necessarily change back. The pattern is much more spasmodic than it once was: the average shop worker used to work a five and a half day week—shops used to close on a Wednesday afternoon—which was a full-time job. We now have a society in which we want, expect, offer or are taken in by—however we want to put it—the 24/7 culture. We want to be able to shop at our local supermarket on Sundays or on our way home at 11 o’clock at night. The corollary of that has been that many employers, who are open all that time, want to adjust their staffing around their busy times. That is one reason why people are often offered quite short-term contracts.

It is very common for people—in shop work in particular, but in lots of other jobs as well—to be on contracts with quite short hours. The Government themselves have said they can see the advantage of that for individuals, as it enables people who have not been in employment to take the first step on the road back to work. To be able to do a job initially for only a few hours at a time gives them work experience, confidence and the ability to prove themselves to an employer, and then work up from there. Nobody is suggesting that the eight-hour job or the six-hour job is the be-all and end-all, but it may give people an opportunity to build up experience.

Some people in that position will be able to get credits, as under universal credit they will be able to get credits if they are also in receipt of benefit. However, if, for example, someone has a partner and so their income is too high to qualify, they may not get credits—unless the Minister can reassure me that they would be able to. Those people could end up doing several years of work of that kind without building up years towards their pensions.

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

My hon. Friend is a member of the Work and Pensions Committee. During pre-legislative scrutiny of the Bill, did the Government offer any evidence about the situation of those people who were expecting to need 30 years and cannot get to 35 years? Were any figures produced on potential losses, emotional or otherwise?

Sheila Gilmore (Labour, Edinburgh East)

I am racking my brains to recall whether that was the case. Concerns were pointed out to us that there would be people in that position. I believe the Minister’s view is that, as they would not be any worse off than under the current system, that is not really a problem. Yet, in their age group and in their cohort, they will be among those who effectively do not benefit from the reforms. As post-2016 retirees, they would be fully within the new system, and this group is definitely post 2016, but they will not get the full benefit because they will have made arrangements in their lives on the basis that they understood they had already qualified for a full pension. Had they known that, they might have made different arrangements, had they been able to; they certainly would have had more time to do that.

We are back in the business of transition, which is always a difficult issue. Will the Minister comment on the issue of people with low earnings with multiple jobs who are therefore over the earnings limit, but who cannot have those earnings added together? Part of the concern has been how to divvy that up between employers—which employer pays what element of the national insurance contribution? When Baroness Hollis gave evidence to the Committee, she suggested that those people could be treated in some sense as self-employed but still build up credits.

Although the numbers in that group may not be large, I suspect they will grow rather than diminish because of changes in work patterns. We do not want to disadvantage people in that position. Traditionally, the view was that if a person’s earnings were sufficiently low to be below the threshold, in a sense they were being done a favour because they did not have to pay contributions. However, there is a downside to that: they are not building up the record that comes from those contributions, which will have a long-lasting effect, right into retirement.

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

Transitional arrangements generally, and potentially these transitional arrangements in particular, bring into view the ending of the state second pension. There will be low earners who are saving into the state second pension, which is redistributive in its impact, who were banking on continuing to pay into that after 2016 so as to get its significant accrual rate. We know that S2P is distributive: those who earn between £5,000 and £14,500 a year accrue state pension as if they are earning £14,500. But that will disappear, which is a significant issue. Does my hon. Friend agree with that?

Sheila Gilmore (Labour, Edinburgh East)

I thank my hon. Friend for that reminder. Indeed, the previous Government introduced very real pension reforms. It was not, as implied in an earlier contribution, that they did nothing about various pension problems. They concentrated a lot of effort on low earners who traditionally had not had good pension cover through their employment and required a boost to add to their basic state pension.

When the Work and Pensions Committee looked at the issue of people who might fall under the lower earnings limit for contributions and be unable to get credits, the suggested figure for such people was 20,000. It is an estimate, and I doubt whether anybody knows the precise figure because it is presumably quite difficult to know when people are doing that kind of low-hour work. They are clearly, by definition, not paying contributions so they are not on the records. Obviously, if they have young children up to the age of 12, they will be able to get credits under the system, as will carers. As I understand it, if a couple are both in receipt of universal credit—or, to be more precise, the household is—credits can be given to both partners, which is a change from the previous situation. That is an improvement, but there could still be people who fall outside all those arrangements. If they are working and earning and therefore, in a sense, contributing—and in some cases through more than one job—they may actually have a reasonable income. We should find a way of including them within this scheme so that, come their retirement, they can actually get a pension and are not left with a low income which will impact on them for many years. Otherwise, they will be left among those groups who could still be dependent on means-tested additions to any pension they have been able to build up, for many years into the future. I am interested to hear the Minister’s comments on these issues.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I will address my remarks to new clause 2 in particular, as clause 4 appears to have been largely accepted. To clarify, we are moving from a situation where someone needs 30 years for a £110 pension, having accrued an earnings-related pension on top, to needing 35 years for a £144 pension. People talk about a full state pension as though we have moved the goalposts, but that is simply not the case. What a full state pension is has, in itself, changed, so it is not comparing like with like to use the same words, because they mean something different in the new regime.

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

I absolutely take the Minister’s point, but I am sure he is aware that to the average person in the street, a state pension is a state pension. He is right: there is an issue regarding the abstract and the reality of what the average man or woman in the street understands by “the state pension”. It is the sense of relative unfairness that is a thorny issue.

Steve Webb (Liberal Democrat, Thornbury and Yate)

If all of us who communicate these matters say, “You used to need 30 years for £110 plus something else, and now you need 35 years for £144”, there would be no confusion. There are those—perhaps not in this room—who have found it convenient to imply that we are now asking for 35 years for something we used to ask 30 years for, and that is not the case.

New clause 2 is another one of the Opposition’s reviews. I think the hon. Gentleman became a teensy bit defensive about his right to probe. Of course he has the right to probe and to ask questions; that is what he is paid for. All that we were ever so gently saying was that, as well probing, the Opposition give the impression outside this place that they have something firmer in the way of views—but mysteriously they disappear inside this place. It is that inconsistency that I was gently chiding him over.

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

I had hoped I was reflective rather than defensive. I will have to work on my posture and tone if the Minister sees that as defensive. I was going for reflective, but clearly I did not succeed.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I inferred defensiveness rather than reflectiveness, but perhaps that was a mistake.

The hon. Gentleman accused us of being generous. He said that people who have been contracted out can now build up to £144 and that we have been generous to them, and perhaps we have. Of course, one group we are thereby being generous to is precisely the one the Opposition highlighted this morning, who were mis-sold personal pensions. What went wrong for some of those people is that they were in contracted-out personal pensions that will not perform, so they will not build up through SERPS—because they are not in it—the sort of pension they might have wanted. We are now giving them the chance to do post-2016 years and fill some of that gap. Again, we may be addressing an historical wrong, among the many good things this legislation does.

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

I thank the Minister for elaborating on that point. The Opposition do not consider generosity a crime, so my comment should not be taken as a criticism of the Government. I take his point about the personal pensions dimension.

Steve Webb (Liberal Democrat, Thornbury and Yate)

The new clause suggests that the review be conducted within six months—that is not our phrase—of Royal Assent, so we would be back to a review finishing in autumn 2014. I was asked whether Government computers are all high-tech and shiny, and of course they are, but some preparation is required to bring in a new pension system for the entire prospective retired population. If we wait until autumn 2014 for the outcome of the review—presumably the point of a review is that we might act on it, which will take further time—it is simply inconceivable that we would be ready to go in April 2016 and that we would have time to communicate to people what will happen, because we would have been changing the plans even after Royal Assent.

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

Not all the points the Minister has made are unfair. We are not making an observation about how long a review would take; we are simply suggesting that the review would come back to Parliament within six months, and I hope it would be speedier than that. On computers, it was the Minister who asked my hon. Friend the Member for Edinburgh East—I assume it was a rhetorical question—whether she had experienced Government computer systems from the inside, the implication being, I assume, that they do not always work perfectly. That was really my point; by the Minister’s own reckoning, Government computer systems have a tendency not always to work swimmingly.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I would draw an analogy with a vintage car. Someone who understands it and has time to get it going can probably make it do something beautiful, but it can take a while. There is a lead time.

Richard Graham (Conservative, Gloucester)

If I heard the shadow Minister correctly, this morning, his requirement of Government computers was that they should be tip-top and high-tech. Perhaps the Minister would like to comment on the extent to which he thinks his own computer meets those requirements.

Does the Minister think there is a danger that the new clause is not designed so much to meet with the Committee’s approval—nor, indeed, does it really meet any particular aim of the Opposition to oppose the Government’s change from 30 to 35 years of contributions for a full pension fund—but perhaps merely gives the impression that that was what they would have preferred to do, even if there was not the money to do it or the will to take it forward?

Steve Webb (Liberal Democrat, Thornbury and Yate)

I am a charitable sort of chap, so I cannot imagine for a moment that the Opposition would seek to create such an impression. I am sure the new clause was tabled in a spirit of probing.

I was asked how much will be saved by changing from 30 to 35 years. The £1 billion figure that I gave to the Work and Pensions Committee, which was accurate at the time, was a 2030 estimate based on the 2017 start date. I can update the Committee with an estimate for 2030 of £0.7 billion, based on a 2016 start date. But in steady state—well, in 2060—it would cost £2.9 billion to go back to 30 years. Those are substantial sums, but they take time to build up, which is my crucial point.

Pamela Nash (Labour, Airdrie and Shotts)

I am sorry that I was not here for the start of the Committee, and if this point has been addressed already, I apologise. This morning, we heard only about winners from the change, so how are the Government making this saving?

Steve Webb (Liberal Democrat, Thornbury and Yate)

As I was about to say, as we come up to 2016 we do what is known as the “better of” calculation: what someone gets under the old rules and what they get under the new rules, and they get the higher of those two amounts, so they do not lose through the 35-years provision in 2016. Thereafter, each year buys them one-35th of £144, which is more than one-30th of £110. Someone who, in 2030, has done a lot of their years post-single tier will have been building up in a system where they require 35ths to get to the full amount, compared with a single-tier system where they need 30ths.

The £700 million is the difference between single tier with 30 years and single tier with 35 years; it is not the difference between our new system and the old system rolled forward. Of course, dividing everything through by 35 saves money compared with dividing through by 30, because it must do, but that is not the same as saying that people are losing out, because everything they have built to date is honoured. I hope that that is clear.

I have been passed a note that says “confidence in it”, but that must mean in IT. I am very confident in our IT—

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

Did the computer print that?

Steve Webb (Liberal Democrat, Thornbury and Yate)

That is right. Obviously, as the House expects, we think that the HMRC systems that we rely on to support the calculation of single tier will be ready at least six months ahead of the April 2016 implementation date. We have worked with HMRC on pensions reform in the past, and we are confident that we can deliver on time. Clearly, the more lead time we have, and the more certainty in legislation and regulation, the easier it is to do such things. If there is any chance that any of the rules might change, there is a chance of a waste of money—if we assume that they will not change—and a loss of lead time. We can deliver this, although it will be tight, but any further delay would jeopardise the April 2016 start date.

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

I take the Minister’s point, which is not an unfair observation. May I push him on a little? He described making the transitional calculations as a bit messy. What is his expectation of how the calculation will proceed? How many people will have to be lettered? By when do the Government hope to letter everyone?

Steve Webb (Liberal Democrat, Thornbury and Yate)

When I say a bit messy, I suppose I meant that trying to turn a description of the calculations into the English language is messy. It is the sort of sum that we do anyway. We are working out the 2016 accrued rights to date, which is what the computer does, because had we not changed the system that is what someone would get; then we work out the new figure, which is 35ths of £144, less the rebate-derived amount. We wrote to the Committee after this morning’s sitting with one we prepared earlier, which is a simplified note on the rebate-derived amount, which I hope that Committee members will rush out to read. Explaining the pensions jargon is complicated, but the maths is not complicated, so it is not difficult to programme such things.

On how many people, we will not be writing to anyone. The reform affects those who reach state pension age from 2016, which is clearly pretty much everyone who has not already retired. We will not be writing to about 40 million people to say, “Guess what, you have a foundation amount of threepence ha’penny in 2016.” We will be working hard on online information, statements and a whole communications strategy. People can already get a broad indication of the sort of pension that they will get; over time, we will be beefing that up. We will not be writing tens of millions of individual letters, but, as people get nearer pension age, they will find it increasingly easy to get from us what they need to know, and it will be a lot simpler.

I will move on to the issue of the people between 30 and 35 years and that of someone who has planned on the basis of 30 years, but now it is 35. The focal point in new clause 2 is people who have had something change late in their working life. I stress: if the old system gives them more than the new system does, they get what the old system would have given them—almost without exception. As long as they have the 10 years, they get the higher of the two numbers.

We have, however, given them an extra possibility, which they did not have under the current system. Now, all that people who have done their 30 years and stopped can get is the £110; they cannot pay extra NI and boost that amount, because they are full up. Under the new system, they may get 35 years; they may buy voluntary contributions—if they have the cash, I accept that point—and build another qualifying year, up to 35. Therefore, the potential state pension for the women we are talking about—it is principally women—is boosted; they have a new possibility. The rate of the voluntary national insurance, as we mentioned this morning, is fandabbydozy—to quote the hon. Member for Edinburgh East—in the sense that it is exceptionally generous.

I am advised by my learned friends that fandabbydozy is an expression of admiration or enthusiasm, popularised by the Krankies, who were—I quote—“a Scottish comedy duo”.

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

The Minister must be careful with his tenses; he said that the Krankies “were” a wonderful Scottish act—that should be “are”.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I am grateful to the hon. Gentleman for letting me know how he spends his spare time.

This is a new possibility for people: they can buy extra years, although obviously they need to have the cash.

Oliver Colvile (Conservative, Plymouth, Sutton and Devonport)

I thank the Minister for being so precise on this issue. What happens if people have paid NI for more than 35 years—say, for 40 years? Will they then stop paying NI?

Steve Webb (Liberal Democrat, Thornbury and Yate)

The situation will be the same as it is with the current system. Currently, the basic pension is payable in full for 30 years of contributions, but people have a legal liability to pay NI for as long as they are earning above the floor and are below pension age. Therefore, under the current system, the 31st, 32nd or 33rd year does not add to the basic state pension, but people still have to pay NI. They accrue additional state pension under the current system. We are merging that into a single system in which people build up their pension for 35 years; however, it remains the case that there comes a point beyond which people will reach the maximum but will still pay NI, because national insurance is a system of pooling: beyond a certain point people are simply contributing to the wider pot rather than to their own pension rights.

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

The Minister has given an accurate answer to the hon. Member for Plymouth, Sutton and Devonport, but one thing has struck me. Does he think it would be fair to describe the new system—the rolling together of the second state pension and the basic state pension to create the flat-rate pension—as capped? Someone cannot get more than £144, so it is a capped state pension.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I noticed last week that the hon. Gentleman was desperately trying to get the witnesses to use the word “capped”, and none of them was prepared to do so, so there is a precedent there. It is a flat-rate pension. I am not sure why he wants to describe it differently, but it is a flat-rate pension—it is what it says on the tin. People can build up contributions beyond the 30 years through voluntary contributions should they wish.

The suggestion in new clause 2 is

“phasing the transition to a 35-year full pension requirement via an interim requirement of 30 years.”

If that means what it appears to, presumably we would keep the 30-year requirement going for a number of years after 2016, and then switch it off. The phrase “cliff edge” screams out at me when I read the new clause. Presumably, either the requirement for contributions would be 30 years, 30 years, 30 years and then 35 years, at which point some other Committee in some other part of this building would have exactly the same conversation as we are having now because of that sudden cliff edge; or, worse still, the requirement would be 30 years, 31 years, 32 years, 33 years and so on, and we would then face transition, phasing, “better of” calculations, accruals and off-sets. Sometimes, Governments just have to take decisions. We think this is a clean decision, with transitional protection for the people who have already built up more contributions. That seems the fair way to go.

I ought to respond briefly to the hon. Member for Edinburgh East on her point about people who do not build up the required 35 years of contributions because they have multiple jobs below the lower earnings limit; the link is tenuous, but we are in Committee. This week, we have published an updated estimate of the number of people in that position. We think it is of the order of 50,000 people. That is slightly more than we thought before, partly because we have updated our estimates of various other changes; one in five of those might be on credits because of claiming universal credit, but that is the sort of number we are talking about.

The crucial point here is that those people are paying no national insurance. If we invented a system in which people with multiple jobs had them added together, so that they would have to pay national insurance, many of them would not thank us for that, particularly if they had already made 35 years of contributions. Let us imagine someone in their early 50s, who has already built up their 35 years of contributions. Suddenly Steve Webb comes along, adds together all the little jobs on which they are paying no NI and takes some NI off that person. They will ask, “How much will that boost my pension?” The answer will be zilch, because they have already paid their 35 years of contributions. That would not be popular.

For a lot of those people, not paying NI is the better option, particularly if the phenomenon is temporary. If they spent their entire life with that working pattern, it would be a different issue; however, we should bear in mind that people can get a full pension for 35 years of contributions out of a 50-year working life, so even 15 years of doing multiple small jobs and never getting above the NI threshold would not be a problem. People would not thank me for putting NI on those jobs. Requiring those people to pay NI would not be popular and could be counterproductive for many of them.

Michael McCann (Labour, East Kilbride, Strathaven and Lesmahagow)

I am puzzled by that argument. In response to the hon. Member for Plymouth, Sutton and Devonport, the Minister made the point that even after someone hits the 35-year requirement they will still contribute to the system because it is pooled, but will get zilch back out. Is he not making massively contradictory arguments? The argument he offers against people pooling multiple jobs to make NI contributions is that those people will get zilch. Does not the same apply to the previous point he made in answer to the hon. Member for Plymouth, Sutton and Devonport?

Steve Webb (Liberal Democrat, Thornbury and Yate)

No. What I am saying is this: the hon. Gentleman and other Opposition Members are, quite properly, representing and trying to do right by those constituents of theirs who have multiple part-time jobs below the floor. Let us imagine that, in response to the Opposition’s representations, I said that we would change the rules so that, instead of treating each wage as separate, we will add them together to get those people above the floor and then require that they pay national insurance. His constituents, in that situation, would lose, because they would have to start paying national insurance they do not currently pay, and in many cases might not build up any extra state pension. That is clearly good for the Exchequer and for the pooled nature of national insurance, but it will not be good for his constituents.

Sheila Gilmore (Labour, Edinburgh East)

My problem with the way the Minister is attempting to address many of the issues is that rather than focusing on improvement, he is keen to find a group for whom things would be worse, and to say that therefore we should not bother about the people for whom things might be better.

My understanding is that that the national insurance issue is not a new one, and that various Ministers and Governments have considered it in the past. They have not necessarily found a solution—I accept that; but to say, “Some people might already be over the 35 years, so we would not be doing them any favours,” is not to deal with those for whom the measure would be of great assistance.

Steve Webb (Liberal Democrat, Thornbury and Yate)

With a blanket solution—and I think the hon. Lady may have mooted the idea of combining things—we would need to beware of unintended consequences. We would help a small number but possibly act to the detriment of a larger number. That seems to me a legitimate point.

A more tailored solution is to work out whether there are other reasons for the situation. Someone who has, say, two part-time jobs, both of which are under the floor, might be doing that because of caring responsibilities for children or an elderly relative. We would need to make sure that that person was properly credited in. In a sense, for that person, the ideal solution would not be to be made to pay national insurance; it would be for us to examine the reasons why they could not work more hours, and ensure that if it was legitimate they would be credited in. That is what we will do. Through universal credit we will bring 800,000 people into crediting for national insurance, because even the partners of people on universal credit get national insurance credits.

We think the hon. Lady is talking about a relatively small number of people, many of whom might not be suffering in any case, for whom the solution might be worse than the cure, and for whom we have other options open, including voluntary national insurance. If people have multiple part-time jobs that take them well above the lower earnings limit, they will have a wage out of which they can at any time pay voluntary national insurance. That would solve the problem as well.

My judgment is that the relevant group is a small one, and that many of its members may not be losing. We are helping that group of people through other policy measures and there are options available to them. I have not heard what else we might usefully do, and I am not convinced that there is a significant problem.

As with the previous proposal for a review, under new clause 1, a review under new clause 2 would lead to further delay in implementation. It would address a perceived problem rather than a real one for those close to pension age, because they would be protected in any case. On the strength of those facts, I ask the Committee to reject new clause 2.

Clause 5 - Transitional rate of state pension

Steve Webb (Liberal Democrat, Thornbury and Yate)

I hope I can deal with the clause relatively briefly, because it follows naturally from our debate on clause 4.

Clause 5 links to schedule 1, and simply provides either that the amount someone gets will be the sum of what they got under pre-commencement and post-commencement qualifying years capped at the full single-tier rate; or, if they would have got more under the old system only, that is the figure that they will get. That seems to us to provide proper protection. Changes will be possible through measures under clause 6, which I shall explain when we reach that point, or in the case of people who paid the married woman’s stamp, which is dealt with in clause 11.

Clause 5 simply stresses the concept of the foundation amount: a person will get the higher of either the pre-qualifying and post-qualifying years added together, or the amount already accrued under the old system. That seems a very fair transition method to us.

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

I do not have much to add to that. The Minister has set out the situation clearly, and it follows logically from the Government’s position on the previous clauses.

More generally, I understand that the Minister takes the view that some of the issues being raised are perceived rather than real. However, I dare say that it is a question of how people think. If we believe that those around us are getting a better deal than we are, that creates a feeling of unfairness. Even if our position is no worse, or it is better, than it would have been if the change had not occurred, as human beings we tend to focus on the relative position. Having put that point on the record, I will simply say that clause 5 is acceptable from our point of view.

Schedule 1 - Transitional rate of state pension: calculating the amount

Steve Webb (Liberal Democrat, Thornbury and Yate)

The spotlight now falls on the unheralded talent of the parliamentary counsel, who write our legislation. I would love to claim that I wrote all this stuff myself, but I simply say, “This is what I want to achieve,” and very clever people who have studied law go away and write it beautifully.

I encourage the Committee to look at page 26, on which schedule 1 appears, because I am advised that this is quite avant garde as parliamentary drafting goes. It takes people step by step through how the whole thing works. Paragraph 2 goes through the four steps of the calculation. In step 1, we calculate someone’s pension under the old system; in step 2, we calculate a pension under the new system; in step 3, we take whichever is the higher—this is the one place in the legislation where the wording “foundation amount” is used; we were determined to get it in the Bill—and in step 4, we revalue to when the person reached pension age. I will say a little more about the latter in a minute. The remainder of schedule 1 goes through each step in detail. It is rather beautiful, in the sense that it takes us through, in intelligible language, how the calculation is done.

I will now clarify what each of the four steps does. [Interruption.] I can hear some appreciative noises from my right. Step 1 simply works out the pension based on the old system, including, as we heard this morning, the graduated retirement benefit. We then work out under the new system the 35 years less the rebate-derived amount, take the higher of those two, which is the foundation amount, and finally—this is the crucial point—that figure is revalued to when a person reaches state pension age. As we have heard, the single-tier element is revalued in line with earnings and any excess protected payment is revalued in line with CPI. Having had that foundation amount revalued to when a person reaches state pension age, any post-2016 years after that are accrued at 35ths of £144.

The beauty of the system is that everyone will have a foundation amount. What goes on under the bonnet may not be very pretty, but they will have a figure that tells them what they have in the bank. People could have a badge saying, “My foundation amount is so and so.” Apart from revaluation, that is the figure, and future years of service build people up to the magic figure of £144. About 85% of people at steady state will get £144. Although there is a great deal of detail, on which I am happy to answer questions, I hope that I have given an overview of what schedule 1 does.

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

I am tempted to ask the Minister whether the wonderful draftsmen to whom he refers are situationists. Never did I think that the avant garde would be brought into parliamentary drafting. Listening to the Minister’s enthusiasm for the calculations involved in the Bill, I was trying to remember who he reminded me of, and it suddenly came to me—I mean this as a compliment—that it was that wonderful man Johnny Ball who used to be on TV explaining numbers to schoolchildren and others. I had my own experience of Johnny Ball, when we managed to eject him from the rectorship at Glasgow university, but that is another matter, and I will not go into it.

Karen Bradley (Conservative, Staffordshire Moorlands)

Shocking!

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

Absolutely. The schedule is significant because, as the Minister has said, it explains how the calculation is done. We had what I might describe as a preliminary skirmish—that is probably putting it a bit strongly—about the amount that someone may have above the new flat rate state pension. My understanding is that under the Government’s current triple-lock policy, all of one’s state pension is triple-locked. Under the proposals of this new system—

Steve Webb (Liberal Democrat, Thornbury and Yate)

No, the basic state pension is triple-locked.

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

The basic state pension is triple-locked. Under the new system there will only be one state pension, and anything that one has above £144 or whatever the figure is for the new flat rate state pension, will not be triple locked. Is that the case?

It was worth a try, but I could not draw the Minister. The point I am trying to bring out, as I am sure the Minister is aware, is that as things stand, the basic state pension is triple-locked. We are, by the Government’s lights, rolling the additional state pension and the basic state pension together into a new state pension system. Those who have accrued rights above whatever level the new flat rate state pension is set at, will have those accrued rights above the illustrative figure of £144, and that will be, according to the Government’s lights, indexed by CPI. No longer will the state pension, as such, be fully triple-locked. Is that the case?

Steve Webb (Liberal Democrat, Thornbury and Yate)

It never was. The triple-lock pledge applies to the £110. If one retires today on £150, £110 will be triple-locked and the rest CPI-ed. In the brave new world you get £144 triple-locked and the rest CPI-ed once pensions are in payment. The new regime, in terms of pensions in payment, is unambiguously more generous.

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

I thank the Minister for that reply. As I said previously, generosity is not a crime. Whether I take the view that it is avant garde or not, it is very clearly set out. I think that generally speaking, we are into the calculation. We have to be aware that the Minister is clear that this is a cost-neutral reform, so being cost neutral, we have to be aware that there will be losers as well as winners. We will continue to tease that out, but in terms of the schedule itself, I am happy to accept the Minister’s observations on it.

Schedule 2 - Transitional rate of state pension: up-rating

Steve Webb (Liberal Democrat, Thornbury and Yate)

Our star draftsman could not quite keep it up for schedule 2, so this is a bit more bog standard, for want of a better phrase, rather than avant garde. However, it does the job. Schedule 2 underpins clause 5 to set out the basis for up-rating the transitional rate of the state pension. The Committee will remember that a transitional rate is for the people who have the bit before and the bit after 2016. Different operating mechanisms are used for the amount up to the full single tier, and for the protected payment, earnings at least for amounts up to the full single tier, prices for any protective payment—obviously, both in law are minimum, but a future Government can be more generous.

Schedule 2 defines the transitional rate as the rate that first, includes any reductions arising from a state pension debit under clause 14, but excluding any increases because a person has deferred their pension under clause 17. I hope that clarifies the purpose of the relatively brief schedule 2, and I commend it to the Committee.

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

The parliamentary draftsman might not be able to keep it up, and neither can I in this sense. I will rest on the Minister’s explanation of schedule 2.

Clause 6 - Recalculation and backdating of transitional rate in special cases

Steve Webb (Liberal Democrat, Thornbury and Yate)

Clause 6 covers a slightly unusual set of circumstances. If somebody has been contracted out of SERPS or the state second pension in the past but their employer pays a premium to put them back into the state second pension, we need to make sure that they do not retire before that has happened and find that we do not have a legal basis to recalculate their state pension after that has happened.

To give an example of how this could happen, imagine a person is relatively close to pension age, they join a workplace pension that has a rule that they will not get any pension if they have not been in it for two years. They leave the company, they never got their two years, so they built up no occupational pension but neither did they build up any SERPS pension because they were contracted out. They would end up with nothing for that period. In those circumstances, the firm pays a premium to put them back into SERPS. We therefore need to ensure that if that were to happen after the person had reached pension age, for example, we would have the legal power both to redo the foundation calculation to ensure that everything was as it would have been if the employee had been in SERPS all along, and to give them the correct pension. Clause 6 is simply about recalculating and backdating the transitional rate in the special case that I have described. It is in the spirit of what hon. Members would expect, so I comment it to the Committee.

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

I have nothing to add to that. I thank the Minister for his explanation.

Clause 7 - Survivor’s pension based on inheritance of additional old state pension

Anne Main (Conservative, St Albans)

With this it will be convenient to discuss new clause 3—Review on gradual transition from certain benefit arrangements based on age—

‘(1) In relation to women without a national insurance contribution record who relied on a husband’s national insurance contributions and would under existing arrangements have accrued a benefit based on such spousal contributions, the Government shall conduct a review to determine the costs and benefits of permitting women within 15 years of state pension age as at 6 April 2016 to retain their accrued rights. Such a review shall be conducted within six months of Royal Assent of this Act and a report thereof laid before Parliament.

(2) The review shall also consider whether similar provision should be made in relation to sections 9 and 10 of this Act.’.

Steve Webb (Liberal Democrat, Thornbury and Yate)

This is another example of the Opposition asking for a review and, again, I will give the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East the chance to make the case for that before I explain why we do not think that one is necessary.

Clause 7 is about the pension that a person gets from their spouse or civil partner when they die. There are two broad categories of circumstance. One is where the person who dies was a single-tier pensioner—that is, they reached state pension age after 2016—and the other is where they were a pre-single-tier pensioner. Essentially, if someone’s late spouse was a pre-single tier pensioner, they will inherit a share of their SERPS pension, up to a cap—there is a cap in the current system. It will operate basically as under the current rules. For example, if the person who dies first retires under the current rules, we are not saying that just because their spouse is a single-tier pensioner, suddenly all the inheritance that they thought they were going to get goes out the window. Essentially, that would carry on.

Conversely, if the person who has died is a single-tier pensioner, we propose that half the protected payment is inheritable. That is quite straightforward. The person who dies takes their single-tier pension with them, as it were, but half of the balance is inheritable by the spouse. That seems to be a way of honouring what has gone on in the past, particularly for those who have retired pre-single tier and expect to be able to pass on half of their SERPS, or whatever it is, according to their age.

The new system has a much cleaner transitional set of rules for inheritance. In the long term, there is no inheritance; when the system is fully up and running, people will earn pensions in their own right, not because of who they were or were not married to. However, we clearly have a transitional period to cover, quite properly. Clause 7 sets out the basis on which that should be done.

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

We recognise the Government view on striving to create a more equal society for men and women and more widely in terms of non-married couples and civil partnerships. Different approaches need to be reflected in the Bill and in clause 7, and a modern approach is needed.

New clause 3 speaks for itself. However, I would like to set out the Opposition’s view in a little more detail. As the Minister set out a moment ago, the single-tier pension will be an individual entitlement with no special rules for people who are married, bereaved or divorced. That is the Government’s ambition, and there is much to be said for that approach.

Currently, people who are or have been married or are in a civil partnership may be able to use their partner’s record to receive a state pension or to increase the amount that they receive on their own record. The Opposition welcome the fact that there will be transitional protection in some situations, to protect inheritance of the additional state pension—S2P—and for women who paid reduced-rate national insurance contributions. It is still the case, however, and the Select Committee certainly had something to say about this in its pre-legislative scrutiny, that some people—mainly women—who have been relying on their partners’ larger pension records and quite reasonably expect to receive the married women’s pension in the next few years, or a full basic pension if widowed, will not have the time to make up the contribution years before they reach retirement age. The issue of cliff edges has been mentioned several times during our scrutiny of the Bill, and that is another cliff edge.

The Opposition believe that, in line with the Work and Pensions Committee’s recommendation, it should be possible to find a solution for the small group of women in that situation, those who did not build up their own national insurance records because they had a legitimate expectation that they could rely on their husbands’ contributions to give them entitlement to the basic state pension. The Minister referred to the fact that under the current system there was a cap on the amount that such persons could inherit.

We want the Government to explore what can be done to make the situation as fair as possible for that group. One option, which the Select Committee endorsed, is that women who rely on their partners’ NI record with the reasonable expectation that they will receive a married women’s pension, or a full basic pension if widowed, and do not have the time to make up the contributions, are given a protection in transition such that those who are within 15 years of state pension age are able to retain their rights.

Andrew Griffiths (Conservative, Burton)

A 10-year period to allow people to make alternative arrangements seems to have reached general consensus across the House—and there was talk of a seven-year period. Will the hon. Gentleman explain why in this instance he has chosen 15 years rather than 10?

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

There are a couple of issues. The first is that that was the time period that the Work and Pensions Committee suggested, on a cross-party basis. Without wishing to cover ground that I think my hon. Friend the Member for Edinburgh East will cover, I will say that there is a case that people in that position—women in particular—are less likely than other groups to be able to make up the difference, and that is why 15 years has been suggested. My hon. Friend the Member for Edinburgh East might want to elaborate, but that is my understanding.

During its pre-legislative scrutiny, the Work and Pensions Committee also suggested that the Government assess and publish the cost of providing that option for the relatively small number of women affected. I guess we have to use our imagination a little, but I do not think that too much is required to put ourselves in the shoes of that small group of women. As those women, we have lived our lives expecting that, while we do not necessarily have our own national insurance contributions, our husbands’ will ensure that we get something reasonable in retirement. If we were some of those women, we would feel a real sense of anxiety about the shift.

We recognise that, in the broadest sense, changing the system to one based on an individual’s contributions reflects changes in society—of course we do. That is entirely right. The Government have not published figures on the cost of providing the protection to the women, as suggested by the Select Committee, and we ask them to probe further for this, I think, relatively small group. We do not know its precise size, but it is a relatively small group of people, for whom anxiety about the potential loss is significant.

Andrew Griffiths (Conservative, Burton)

The hon. Gentleman makes the point about our still not knowing the cost of providing the protection for the small group of women whom he talks about. If he agrees with the principle that the proposal should be cost-neutral, however, how would he pay for any additional costs?

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

We are asking the Government, as the hon. Gentleman is aware from the new clause, to dig down and to say how many women, or people, will lose out and by how much, and then what it will cost. I refer him to our discussion in Committee about cost-neutrality, which he may remember. The Bill is cost-neutral, in so far as the new system does not cost any more than the existing system. As the hon. Gentleman is aware, however, there is the issue of the increased national insurance contributions, which are going to the Treasury. It is a still a little unclear, to put it mildly, what is happening to that £5.5 billion. He cannot expect the Opposition to be able to go into the matter in more detail until we have the numbers and the people involved, which is what I am asking the Government for. If the Government are prepared to provide those figures, and if they accept our proposal for a review, we will be in a position to come to a judgment.

We accept that the provision for derived entitlement dates back to the 1940s. The world has changed, of course. Men worked and women stayed at home, more or less, but society has changed, so that is no longer our social structure. We recognise that the Minister and the Government are trying to reshape the pensions system to reflect more accurately the shifts in employment patterns, as well as the issue of caring contributions, which the Labour Government put in place and which this Government are continuing.

What is a reasonable expectation for that particular group, usually women, for whom the opportunity to make up contributions is probably more difficult than for other groups? That is why the Select Committee suggested 15 years rather than 10. The Opposition view is that by 2020 fewer than 30,000 women in this country will receive a notionally worse state pension outcome because of the removal of derived entitlement and that the pension credit guarantee will remain in place as a safety net for those living in this country. Our estimate is that fewer than 30,000 women will be affected; the issue is how much it affects them, and whether they are in a vulnerable position relative to other parts of society.

We also accept the Government view that the measure is required, but we argue that the transitional period is necessary to stop those women in particular from falling through the cracks. I go back to the point that the state pension reform is a pretty radical shift. We know that it is being made on a cost-neutral basis, therefore there must be significant cliff edges in the system. Our sense is that this is one of them. In the spirit of co-operation and consensus in this part of the Bill, I am asking the Minister whether he is prepared to dig down further, because the Select Committee elaborated on the issue in some detail.

Transitional provision should ensure protection for everyone, based on their legitimate expectations. The key is, what is a legitimate expectation? The issue of a married person’s pension has some resonance for those depending on it.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I appreciate that following the logic of the Bill is not always straightforward, but clause 7 includes in its heading “Survivor’s pension”, so it relates only to widows; it is not to do with the married person’s pension, when both partners are still alive.

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

I thank the Minister for that clarification. Instead of saying fewer than 30,000 women, I should have said fewer than 30,000 widows—that is helpful of the Minister. We are asking the Government whether widows are particularly vulnerable. Are they able to make up the difference in what they would lose? Is there a case for some significant transitional protection for that group? That is the basis of our thinking when asking the Government to review the provision.

Sheila Gilmore (Labour, Edinburgh East)

The Select Committee looked at this matter. The Government have already recognised that there are some residual groups who, for various reasons and in various circumstances, ended up relying on what many of us would now consider an old-fashioned way to make provision for the future.

One group for whom the Government have made provision includes those women who even now, to my surprise, are still paying the reduced contribution rate. They never made the change when the arrangement was done away with for future purposes some years ago. That was based on the notion that women did not work much and, if they did, they were earning only pin money and it would be grossly unfair for them to pay national insurance contributions that would not add up to much. After all, they could expect to receive a 60% pension based on their husband’s contributions.

The Government have moved in that particular area, and a clause in the Bill applies to that small group. One might imagine that such women are very rare. However, I have a constituent in that position and was very surprised, knowing her circumstances, that she had made that choice. She did an amount of small-scale work—another of those people who do the world’s work—and she had decided not to make the change. When she first read about the proposals she was concerned, but then pleased to see that her circumstances are covered, since that small group will be allowed to carry forward their arrangements.

As for survivors, they are not just women who are widows. The provisions under the existing system for people to inherit or gain derived rights have been extended from widows to widowers and also apply to people in civil partnerships.

Anne Main (Conservative, St Albans)

Order. Will the hon. Lady please confine her remarks to the clause? She is straying somewhat wide of the review mentioned in the clause.

Sheila Gilmore (Labour, Edinburgh East)

I was trying to sketch in some of the background as to how we have arrived at this point. As these arrangements have changed for the majority of people so much, it is right that people should build up their own contributions. On that basis, they do not need to get survivorship benefits through a deceased spouse or civil partner, because they have their own pension provision. The debate is about the group who may not have made that provision because they thought they would get this in future if necessary.

The Select Committee’s point was that it would be important not to leave that group stranded. We asked the Government to look at the option of allowing those who would be within 15 years of state pension age to retain this right. The Select Committee’s recommendation was that the Government should assess and publish the cost of providing that option, on the assumption—and I think it is a shared assumption—that a relatively small number of women are affected.

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

Was the Select Committee able to estimate the number affected by the shift to the new state pension?

Sheila Gilmore (Labour, Edinburgh East)

Our understanding was that the number of people affected will not be large, although it is harder for a Select Committee to get that information than it is for the Government. It is reasonable to expect a Government Department to gather such information.

Andrew Griffiths (Conservative, Burton)

I thought the hon. Lady’s colleague said earlier that a relatively small number of widows will be affected. Is she saying that she understood that a large group will be affected? Will she clarify that for us?

Sheila Gilmore (Labour, Edinburgh East)

If I said that a large group will be affected, I did not intend to say that. I did not hear myself say that, although one does not always clearly hear what one says. The group is small because, for the most part, most women now have their own provision. They have sufficient pension in their own right. They have worked sufficiently and have paid their own contributions, so they are not reliant on the provision.

Nevertheless, in making such changes surely we do not want to disadvantage even small groups who have followed a particular path. The provision for inheriting and being able to receive a widow’s or widower’s pension in such situations is not of a recent date. The provision has been in the system for many years; it has certainly been in the system since after the second world war, and it may have been in the system before. From that point of view, the provision is such an understood and expected part of the system that it is perhaps not surprising that some people have continued to assume that they would be in a position to benefit from it.

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

The hon. Member for Burton asked a fair question about how many widows will be affected by the provision. That perhaps speaks in support of the new clause, which would allow us to know precisely how many widows will be affected and to what extent. Does my hon. Friend the Member for Edinburgh East agree?

Sheila Gilmore (Labour, Edinburgh East)

We need clear information. The group might be very small, and I suspect the group is diminishing rapidly. The fact that we have suggested that 15 years is a more reasonable transition period assumes that, by that stage, it is very unlikely that there will be people left in a position to be disadvantaged; there will certainly be a lot of information available to tell people that that is not the case. We are probably dealing with a group of women—predominantly, although the right of inheritance has been extended—who are likely to be older and nearer their own state pension age, and who are therefore not really in a position to overcome the possible disadvantage. However good the Minister believes the system to be and however much he is firmly of the belief that it is all better, as we proceed through the Bill and make the changes it is important that we do not disadvantage even quite small groups because doing so is easier, neater or tidier.

Michael McCann (Labour, East Kilbride, Strathaven and Lesmahagow)

Does this not expose the whole argument about cost neutrality? The Government have trumpeted at every step the £144 payment and the triple lock, which will, of course, last only until 2015. They have not mentioned all the snips, cuts and other bits of tailoring that have been done in the Bill to pay for its cost neutrality.

Sheila Gilmore (Labour, Edinburgh East)

The question of cost neutrality is an interesting one. We have been told that in the long term the new system might be cheaper, which is why some people are wondering who the losers will be. The losers in this situation are created by the transition from a system that, rightly or wrongly, allowed people to rely on contributions made by others, in some cases somebody moving towards retirement, although that is not the issue that we are dealing with here. Some people still feel that the fact that the two systems run together is difficult.

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

No one is claiming that the previous system was perfect, and we must ensure that the pension system reflects changes in society. As things stand, however, the people who tend to struggle most in retirement are widows. There is a cohort of older widowed women, who are often in their 80s, whose income in retirement has suffered. Does my hon. Friend agree that there is a particular thorny issue around that cohort?

Sheila Gilmore (Labour, Edinburgh East)

I said earlier that we have been grappling for many years with the fact that many women are poorer than men in retirement; it is not a particularly new issue. We do not want to perpetuate that situation. We hope that as women’s employment opportunities and earnings improve, and as they get closer to equality, many of those problems will disappear.

The specific issue with this group of widows is that, at the moment, anyone in that position who is on one side of the line can receive a widow’s pension on their partner’s contributions, but someone who retires after we have implemented the proposals—because we want to do away with such old-fashioned notions—would be disadvantaged. We accept that the numbers are small, and it might seem as though the problem does not really matter because the numbers are so small. However, as I believe Age UK pointed out to the Select Committee, when people have made plans based on a reasonable expectation of being able to use their husband’s contribution records, it is not fair to stop them from doing so abruptly. They do not have the opportunity to make up the difference. It would be wrong to leave them with a poor pension that condemns them to long-term low income and poverty during retirement when that might be overcome by a slight tweak to the rules.

Pamela Nash (Labour, Airdrie and Shotts)

Is it true that the widows that we are talking about do not constitute a homogenous group? Many such women, and some men, will also be affected by the other changes in the Bill. I have been visited by constituents who have cared for sick relatives for years, as a result of which they have not built up the necessary contributions and they are depending on their husbands’ contributions. If that happens in future, this group of people will be particularly affected.

Sheila Gilmore (Labour, Edinburgh East)

Some of those who were caring should have been able to get credits, but despite the changes that were introduced in respect of carers, unfortunately some people appear not to have taken advantage of that provision. Perhaps they should have done so, but they have not. One reason why they may not have done so is that they thought that it would not make any difference to them or that they did not need to. They were not proceeding on the basis that they needed to make up the right to a pension from their own contributions, because they thought that the system as we have understood it would come into play.

Although some of those people—not necessarily all—would have been able to make up credits in their own right, we know and the DWP has agreed that the take-up of the ability to get credits has been less than the number of people known or thought to be caring, and has been disappointing. I suggest that one reason why it has been disappointing is the assumption that it was not necessary because of the level of cover that could be obtained under the arrangements that people understood were and would continue to be in place. People made their decisions and planned accordingly.

When the Government, for often good reasons, decided that it was time to make the change—for the most part, it is absolutely right that people should be able and encouraged to make their own arrangements, and to be seen as individuals working towards their own pension provision—those who worked on that other assumption are now feeling, and being, disadvantaged. They understood the system that was operating, and they had been given no particular reason to suggest that it would not continue to operate. New clause 3 suggests an investigation into what the numbers are and how they could be accommodated, with a cut-off at the point where we think that that group will have been eliminated.

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

The point that my hon. Friend has been developing strikes me as potentially significant for what I take to be her argument, which is that some of those in the group who could have benefited from the credits introduced by the previous Government to count caring towards national insurance contributions might not have done so because they took the view that they could rely on their spouse’s national insurance contributions to ensure them a reasonable pension. Is that her argument, and did that emerge in the Select Committee’s discussion of the issue?

Sheila Gilmore (Labour, Edinburgh East)

It was not unreasonable, even if somewhat old-fashioned, for someone to think that that would be the case. If that was their expectation, some will find under the new single-tier pension for those who retire post-2016 that they have less than they expected. I think that the Minister said in evidence to the Select Committee that he thought only about 30,000 people will be affected.

One problem is that we are obviously estimating. The estimate that the Select Committee was given of the number of people under the lower earnings limit was, again, about 30,000, but the Minister has now suggested that he thinks that it is more likely to be about 50,000. We must take some of the estimates with a bit of caution. They may or may not be the end of the story.

Another issue that the Minister raised before the Select Committee was that he believed that a number of those women were not living in the UK, and that the reason why they may not have been able to make up their pension contribution was that they were overseas. That may or may not be the case. Again, without an investigation in more depth, I do not know whether we can be precise. Perhaps the Minister has done that investigation and can tell us about that.

This claim is bit of a red herring. The suggestion is that this measure is not necessary because these are people who lived overseas who are trying in some way to get a pension that they neither need, nor—the implication would be—deserve because they lived overseas. Indeed, it was suggested that some may never have lived in the UK. For them to be able to pick up a pension based on that position would be unfair.

It is not beyond the wit of legislation drafters to exclude such cases if they thought that that was the right thing to do, but I wonder whether the suggestion that this group is not in need in any sense has been thrown into the debate to steer us, and the public generally, away from considering making provision for them. That harks back to the debate on people getting various payments if they live overseas.

I do not think that, in any way, takes away from the fact that some do deserve these payments. Potentially, some of these women made the decisions that they made because they thought that they would be covered by their husbands’ national insurance contributions and, if required, they would get a widow’s pension when needed. Post-2016, they could find themselves in a position where the single-tier pension that they are able to build up in their own right is simply not as good.

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

Was the Select Committee able to crunch the numbers and get an idea of what kinds of losses we are talking about? In this clause in particular, there seems to be fuzziness on how much the loss might be for the losers. Did the Government offer information on the size of that loss?

Sheila Gilmore (Labour, Edinburgh East)

The information offered by the Government was substantially the numbers, as given by the Minister, rather than in any more depth. In pre-legislative scrutiny, it is difficult for a Select Committee to undertake that work. However, it is significant that—I think that the Minister would agree—while the Select Committee’s thinking in the pre-legislative scrutiny report was, on the whole, supportive of part 1 of the Bill, which is the part that we scrutinised, this measure was one of the Committee’s unanimous recommendations. There were other issues that some strongly wanted us to raise but we did not because, on balance, that was not the view of the Committee.

On that basis—given that this was not a Select Committee report that found fault with everything; it was a measured report—the Committee was convinced that this group required a bit more investigation. We could not quantify that in terms of how much it might cost, but I suggest that it would be right for the Minister to investigate this matter further. He should want to have that review with a view to making provision for what will probably be a small group, but nevertheless a group that could be significantly disadvantaged. I am sure that he would not want that group to be disadvantaged through his changes.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I will address my remarks principally to new clause 3. There are a number of reasons why, if we were to implement new clause 3 and act on it, we would, I suspect, be up for judicial review. One is that it relates only to women. As the hon. Member for Edinburgh East said, these days widowers as well as widows have derived rights, so it would be quite improper to conduct a review solely to look at the position of women. Therefore, the new clause as it stands would be unacceptable.

There is a second problem. I fully accept that the 15 years threshold comes from the Work and Pensions Committee, and I place on the record my appreciation of the thorough job done by the hon. Lady and colleagues who took part in the pre-legislative scrutiny; we are grateful for that. However, 15 years is just another arbitrary number. I imagine that if we put in a provision that said we will run on the old rules for 15 years, we would be in another Committee room in another year with another set of Members saying, “But my constituent was 15 years and one day short of pension age and got nothing. This is a terrible cliff edge.” So either we move the line somewhere and create a new cliff edge, or, worse still, we have a tapered system, which would be a complete nightmare.

Michael McCann (Labour, East Kilbride, Strathaven and Lesmahagow)

Is that correct, given that the numbers are diminishing year on year? There therefore comes a point when we are talking not about thousands of individuals, but hundreds. All the parties would generously recognise that we would not draft legislation to cater for numbers that were in the hundreds. If they are in their thousands—and particularly when we are talking about a vulnerable group—there is a stronger argument for changing the Bill. That is why the argument about 15 years is perhaps more potent than the Minister thinks.

Steve Webb (Liberal Democrat, Thornbury and Yate)

It is not so much the generosity of future Parliaments that troubles me; it is the generosity of m’learned friends in the High Court. The point is that we would quickly find that if we put in place a law that someone—even one person—fell just the wrong side of, it would be struck down if it was deemed to be arbitrary. There is no justification for such a measure.

The shadow Minister was asked in an intervention, why 15 years? He perfectly honestly said, because that was what the Work and Pensions Committee came up with, and that the Opposition were, in a sense, probing. However, there is no objective basis for that. We cannot make law on the basis of entirely arbitrary numbers, although it might occasionally appear that we do.

So, the choice of 15 years is arbitrary. There is an issue about legitimate expectations, which is why the rather complex transitional procedures that we have put in place provide protection for the vast majority of people. I will reiterate the numbers we think we are talking about. We have the figures for men, which are obviously much smaller, but we think that by 2020, of all the women who become single-tier pensioners over that five-year period, roughly 5% will lose out—that is the 30,000 number—from the non-availability not just of a derived pension as a widow, but a derived pension as a married woman whose husband is still alive. All of that together is less than 5% of the people we are talking about.

Of course, we could roll on every feature of the old system into the new system for another 15 years. At the same time as we are being asked to do that, we are also being asked to give clear communications. We are trying to bring about a reform that enables people to plan for their retirement, to know where they stand, to know what they will get, and there is a trade-off here. We have put in a lot of transitional protection, but a crucial point occurred to me as I was listening to Opposition Members. A lot of the transitional protection is boiled down into the foundation number, so we do the transition—not all of it, but a lot of it—into that one number, which is then the basis for the new system. We do not keep going back and using the old system. It is boiled down and then we build on it, whereas the Opposition’s proposals literally keep the old rules going for a decade and a half—to 2031, I assume—so that in 2030 people would still have rules based on the 1948 model of basing a woman’s pension on her late husband’s.

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

The Minister refers to the fact that the 30,000 number comes from the Government’s calculation that by 2020, 5% of the women who retire after 2016 will lose out, and that, of course, is not an enormous number. I take the Minister’s point about the foundation amount, but have the Government calculated how much the 30,000 might lose out by?

Steve Webb (Liberal Democrat, Thornbury and Yate)

In many cases, the amounts they will lose out by will be very small. With the 30,000, we are talking about people who would have got £66 a week as married women on their husband’s record. To get that, I think—from memory—they need 16 or so years, because 16-35ths of 144 is £66. Given that we think 82% or 85% of women will get the full single tier with 35 years, the number who are short of that figure is very small, and even when they are, they are often only a bit short. In other words, the differences for most people are small and for the group covered by the clause—the widows—that is where the guarantee credit comes in. They will be the sole member of the household and will be entitled, unless they have huge savings, to a minimum income of £142 at last year’s prices. The widow’s pension that they would have got would be the basic pension—the £110, plus some inherited SERPS—whereas the guarantee credit guarantees them, now, £145 a week. That will make no difference to the income of some women who will not get the inherited rights that they thought they would, because we are saying that they will not be destitute and will not have nothing: they will have the £145, which is substantially more than the widow’s pension of £110.

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

I thank the Minister for that explanation. Does he think there will be significant losers among this group? I noted his words carefully. He mentioned that, in many cases, the losses will be small. Will there be cases where the losses are significant?

Steve Webb (Liberal Democrat, Thornbury and Yate)

It is possible to construct a case study in which, for example, someone who would have got an inherited widow’s pension will not get it, and who does not have a lot on their own basis. In those cases, people then get the guarantee credit, so they are brought up. Yes, they might miss out on the £110 widow’s pension, but if that would leave them with next to nothing, they will get £145.

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

I hope I did not cut the Minister’s answer off mid-stride. I take his response to mean that there will be cases where the loss is quite significant, but in such cases pension credit makes up the difference. He knows that there is no greater supporter of what pension credit achieved than me—it was a significant Labour Government achievement for the poorest pensioners—but he also knows that the logic of the Bill is to simplify the system and take people out of means-testing. I should have thought that he would be as keen as possible for the losers in this group to be taken out of the means-tested system.

Steve Webb (Liberal Democrat, Thornbury and Yate)

It is hard to advance an argument that says, “We run a complicated feature of the old system”—it is complicated; derived rights are fiendishly complicated—“for another 15 years, so that a rather small number of people do not have the complexity of means-testing”. That would be to use a heck of a lot of complexity to try to take a few people out of complexity. I do not buy that argument.

Some widows with good occupational or state pensions of their own, for example, will not get a derived pension and will lose the widow’s pension they would have got. The rhetoric—I do not mean that pejoratively—and speeches we have heard have all been about the vulnerable, marginal and dispossessed, but the only people who lose significant sums are those who have substantial other income, so they would not be in the scope of the guarantee credit. Again, it is easy to elide the two, but the vulnerable, marginal and those who really need the cash will get the guarantee credit and will have an income essentially equivalent to the single-tier pension.

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

I thank the Minister for that further elaboration. If I understand him correctly, he suggests that, although the Government often claim that the pension credits system is fiendishly complicated, this derived rights system is even more complicated. I take that point. Is there danger in this regard, though? We often hear about uptake in debates about pension credit, and it is pertinent to this discussion, Mrs Main. Although I am a great supporter of what pension credit achieved, there is no doubt that not all people claim what they are entitled to. Am I correct in saying that under a derived rights system, these widows in particular would be sure of getting what they are due, as opposed to under pension credit, where they have to claim it?

Steve Webb (Liberal Democrat, Thornbury and Yate)

That is a fair comment, but if a widow in this future scenario has £70 of pension and nothing else to live on, it is pretty clear that the first thing they will do is go to the council, or someone, and say, “What else can I get?” Take-up of the guarantee credit element of pension credit is high, particularly on an expenditure basis, so people with big entitlements are very likely to claim. In general, pension credit is not great, partly because of take-up, but widows on very low incomes who have nothing else to live on claim their guarantee credit.

People outside the UK were mentioned. The hon. Member for Edinburgh East suggested that this was a red herring and asked whether someone clever could just write a law to fix the problem. However, we get terrible flak when we no longer index the pension of people who leave the UK—an issue we will no doubt discuss later.

The hon. Lady suggested that when people move out of the country, they should just lose inherited rights, widow’s pensions and so on. I am already not the most popular figure with the International Consortium of British Pensioners, but it would add to my charge list if I listened to what she said. Indexation is clearly a different issue, but on derived rights, to say, “Just go and live somewhere else and, because you are not here any more, you cannot have a derived pension”, would be a far bigger step that she would struggle to justify.

I will touch briefly on the issue of cost-neutrality, which seems to keep coming up and is worth probing a little. It was mentioned by the hon. Member for East Kilbride, Strathaven and Lesmahagow, who, like one of his hon. Friends, said, “Ah, but there is all this national insurance money kicking around, so”—by implication—“why don’t we spend some of that?”

Of course, we know that the national insurance revenue from the measures in the Bill will pay for the Dilnot social care cap and for employers to take on extra people through reduced national insurance, while the balance will lie with a future Treasury that may—purely to give an example—want to reimburse all or part of the additional cost of the national health service and schools. The Opposition cannot have it both ways. I suspect they would like that rebate money refunded to schools and hospitals, but they have implied that they also want it spent on better pensions. I believe they are no longer into spending the same money twice—or perhaps they are.

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

We know that the Minister and Government Members are always keen to hear the Opposition elaborate on what we would or would not do, but it is rather unfair to throw national insurance contributions back at us. The Government are taking the £5.5 billion, but we have no clarity on what they wish to do with it. The Opposition are asking the Government to clarify what they intend to do with that national insurance windfall. Will the Minister tell us?

Steve Webb (Liberal Democrat, Thornbury and Yate)

At the risk of testing your patience, Mrs Main, I have mentioned a couple of items that have been specifically identified—the national insurance reduction and the Dilnot social care cap—but because that will all come in 2016-17, for which there has been no spending review process, that will clearly be at the discretion of a future Chancellor, who will have to take such factors into account.

To return to new clause 3, the hon. Member for Edinburgh East said that the issue of people overseas was a red herring, but in the past decade the number of people claiming the married person’s entitlement has fallen in Great Britain by 17%, but risen overseas by 17%. In other words, a growing proportion of people with derived rights have a limited connection to this country, which does not seem to us to make that matter a financial priority for the Government.

New clause 3 recommends another review and would involve another delay in the implementation of the single-tier pension. It would create new cliff edges, bring in only women and not men, and greatly complicate the transition for a relatively small number of people for whom other provisions are in place—the guarantee credit, the opportunity to pay voluntary contributions and so on. On that basis, new clause 3 would not add to the Bill’s clarity but would complicate it to no good effect. I urge my colleagues to reject it when the moment comes to do so, but to agree to clause 7.

Schedule 3 - Survivor’s pension under section 7: inherited amount

Steve Webb (Liberal Democrat, Thornbury and Yate)

I hope to be brief. Various combinations of people reach state pension age before and after the move to a single-tier pension, including in relation to whether a survivor reaches that age. The key is that if the contributor reaches the state pension age before the single-tier pension comes in or dies under the state pension age before then, the survivor gets the current inherited additional pension, whereas if the contributor dies under state pension age after the single-tier pension comes in or reaches that age after that point, they will get half the protected payment, as I described earlier. The schedule sets out in more detail exactly how each of those cases will be dealt with.

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

I do not have much to add to that, except that given how the Minister described schedule 3, it just this moment struck me that there is an obvious cliff edge, depending on whether one is under the old system or the new system and what a half-payment amounts to. Am I right in saying that there is a significant cliff edge? I do not use the term pejoratively, but in terms of the transition from one system to another.

Steve Webb (Liberal Democrat, Thornbury and Yate)

Clearly, there is a dividing line before and after. Essentially, in the new system, if you are a married women, instead of getting what I would loosely call a not very good pension—when your husband kicks the bucket, you get half his pension—under single tier, you get a decent pension, but you inherit less and eventually none. It is better that a married woman has a decent pension in her own right from the day she reaches state pension age, rather than have to wait, perhaps 20 years, until her husbands dies to get a decent pension. It does matter which side of the line you are, but as a single-tier pensioner, you get a better flat-rate state pension, but not such a generous inheritance—you get half the additional payment—rather than a lower state pension and a bigger percentage of what your late husband got. We think that married women getting a decent pension in their 60s, rather than waiting until that are in their 80s, is the better way. I commend schedule 3 to the Committee.

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

With the Chair’s permission, I would like to pick up on that explanation. Is the shift from the old system to the new cost-neutral? Do the Government estimate that it will save money, as survivors’ benefits move from the old to the new system?

Anne Main (Conservative, St Albans)

Before the Minister comes back, I ask Mr McClymont to outline his questions in a speech, rather begin a question and answer session. I assume that that is one of his final questions.

Steve Webb (Liberal Democrat, Thornbury and Yate)

I am grateful, Mrs Main.

It is difficult to disentangle the little bits of the system, because this is a whole system in which people get pensions in their own right. There are many consequential facts, one of which is that they do not get inherited rights. Of course, a wife inheriting less of their late husband’s pension saves money—it has to—but a wife getting a bigger pension when they reach pension age, rather than when their husband dies, costs money, and I am not sure that I can disentangle them. The package has been designed, with all the different bits added together, to be cost-neutral. If we had been more generous with inheritance, or had inheritance at all, there is no doubt that it would have cost more in the long run, but paying people decent pensions at 65, or whatever, instead of 85 costs us more. It is a trade off. Again, I commend schedule 3 to the Committee.

Schedule 4 - Survivor’s pension under section 7: up-rating

Steve Webb (Liberal Democrat, Thornbury and Yate)

Schedule 4 sets out the basis on which an inherited amount will be uprated. An inherited amount will be either the equivalent of the current system—an inheritable additional pension, in the circumstances I have described—or half the deceased’s protected payment. It is paid in addition to the pension the person is entitled to in their own right. The uprating will depend on how much single-tier pension someone already has in their own right: if they have £144 or more, the whole will be uprated by prices; if they have less, the balance to £144 will be earnings linked to whatever we do with single tier, and the balance will be subject to the CPI. I hope that is helpful and as expected.

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

I will not detain the Committee too long. I was delighted to see the Minister resort to his folder for one of the first times today. He went through that explanation a bit quickly for me. Did he refer to some of the differences we discussed earlier on indexing? I took him to say that part of this would be indexed by prices. There is another issue with earnings. He said something latterly about the balance that I did not pick up. Will he elaborate?

Steve Webb (Liberal Democrat, Thornbury and Yate)

The basic principle is that the £144 is earnings-linked, at least, and the balance is CPIed. I was making the point that if someone has less than £144 in their own right and they inherit something from someone else, the bit that takes them up to the £144 is still earnings linked, because it is under £144; the balance is CPIed. People should bear it in mind that, currently, inherited additional pensions would be entirely CPIed, because that is what we do with additional pensions.

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

I thank the Minister for that explanation. I have nothing further to add on the schedule.

Clause 8 - Choice of lump sum or survivor’s pension under section 9 in certain cases

Steve Webb (Liberal Democrat, Thornbury and Yate)

One complexity of the state pension system is that if the person to whom someone is married dies before they have drawn their pension, the surviving spouse can have either a lump sum—the pension that their spouse would have drawn—or a survivor’s pension. Again, this is in the circumstances in which the person died under the present system and the surviving spouse is under the new system.

This clause ensures that a single-tier pensioner can inherit a lump sum or an increment from their late spouse or civil partner if the deceased had deferred their old-scheme state pension. The details of the clause cover the choice of payment and inheritance of a lump-sum payment. Clause 9 provides for inheritance of increments, and schedule 5, which I will move formally, sets out the circumstances that apply and determines the amount payable. I therefore commend clause 8 to the Committee.

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

I thank the Minister for that explanation of clause 8. Can he clarify the age from which one can derive this benefit? Is there a minimum age that one must reach before one can have the benefit of inheriting what he described?

Steve Webb (Liberal Democrat, Thornbury and Yate)

I am grateful to the hon. Gentleman for giving way. Clearly, as we said at the start of proceedings on the Bill, people can draw a pension under the terms of the Bill only when they have reached the state pension age under the Bill. They can then inherit a pension in respect of someone to whom they were married who has died, who may be a single-tier pensioner or not. The rules are different, but they have to be in excess of state pension age to draw this payment.

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

I thank the Minister for that explanation of clause 8. I have nothing further to add.

Clause 9 - Survivor’s pension based on inheritance of deferred old state pension

Steve Webb (Liberal Democrat, Thornbury and Yate)

Again, very briefly, this clause has to do with the circumstances in which the deceased has deferred their old-scheme state pension, but when someone defers a state pension, they can take that money as a lump sum or an increment on their pension. Clause 9 sets out that a single-tier pensioner can inherit the increment from their late spouse or civil partner if the deceased had deferred their old-scheme state pension. Again, it just shows the complexity of the system that we are trying to deal with that people could defer and get increments and defer and get lump sums. People could then inherit the increments and inherit the lump sums. I hope that the Committee is starting to see why we thought that this was a system ripe for simplification.

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

I again thank the Minister for his explanation. Opposition Members think that clause 9 is eminently sensible. I have nothing further to add.

Clause 10 - Inheritance of graduated retirement benefit

Steve Webb (Liberal Democrat, Thornbury and Yate)

Let me take the hon. Member for Edinburgh East back with me down memory lane. She referred earlier in our proceedings to graduated retirement benefit—a system of earnings-related pensions that, from memory, ran from 1961 to 1975. Clause 10 sets out the rules—we have to have them—on which people can inherit graduated retirement benefit. The amounts involved, as I think the hon. Lady said, are relatively small. The clause provides that changes to the primary powers for what is known as Grad in respect of single-tier pension may be made by regulations. Similar arrangements exist for changes to the graduated retirement benefit in respect of the current old state pension scheme, where changes are made by regulation. So this is very much tidying up something to do with a legacy system, saying that if we need to do any further tidying-up we would do it through regulations. However, I stress that the inheritance of graduated retirement benefit is a very marginal element of the scheme, and this seems a proportionate legislative framework within which to deal with it. I commend clause 10 to the Committee.

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

I do not have much to add to that. As far as I can see, this relates to clauses 7, 8 and 9, but the Minister referred to graduated benefits. He also referred to changes in regulations. That is a feature of this Bill; there is quite a lot that will depend in the medium term on regulations. However, that is often justifiable, and I certainly see no reason to oppose this clause.

Clause 11 - Reduced rate elections: effect on section 4 pensions

Steve Webb (Liberal Democrat, Thornbury and Yate)

Clauses 11 and 12, and schedules 6 and 7, deal with the group of women—it is exclusively women—who paid what is colloquially known as the married woman’s stamp; that is, the reduced rate election. The married woman’s stamp had its origins in the post-second world war national insurance system, whereby women could pay full national insurance and build up a full pension, but the presumption was that a married woman did not do so and that she paid a reduced rate of national insurance. That meant that she did not build up a state pension in her own right, but she did build up entitlement to a pension based on her husband’s contributions when he reached state pension age, typically of a 60% pension as a married woman or of a 100% widow’s pension when he died.

As the hon. Member for Edinburgh East said, this was not a minority sport at all. I think that, at peak, there were between 3 million and 4 million married women paying the married woman’s stamp; it was what many women did. I have had plenty of letters from people who said, “I came back off my honeymoon at 19 or 20. The man from payroll came round, had a look at my photos and said, ‘Sign this, love.’” That was the way a lot of this was done. There is plenty of argument about whether anyone would ever do anything like that these days, but we must deal with the legacy.

This is a very clear case of where the state entered into a contract with individuals and a deal was done. The deal was, “You put less national insurance into the system, you don’t build up your own pension, but you do get something on your husband’s rights.” We just felt that, although in a sense the option to pay the married woman’s stamp for new people ended in the late 1970s, there was one heck of a legacy of all this. Lots of people even now are coming up to pension age who, at some point, have paid the married woman’s stamp.

Clause 11 relates to the people who have got something in their own right; clause 12 relates to the married women who paid the married woman’s stamp who have got nothing at all. What these clauses and schedules do is essentially to try to replicate what those people would have got. In a sense, it is cleaner, because if they have got nothing at all we just pay them what they would have got—the 60%, or the 100% in due course. If they have got something, we have to mesh together the something that they have got with the extra amount that we will give them, which is why we have done them separately. However, as I think the Committee would consider was proper, what we have basically said is, “If, at your state pension age, you had a live election to pay the married woman’s stamp at any point in the preceding 35 years”—so we have been pretty comprehensive in this, because there is a 35-year rule for the pension and so we thought that 35 years was not arbitrary and was a reasonable period—“you’re in this concessionary basis and essentially you will get the pension you would have got when your husband reached state pension age, because you are on his record as a married woman, and in due course if he predeceases you, you get the basic widow’s pension that you would have got.”

This is one of those trade-offs. This clause adds complexity to the Bill—I entirely accept that—but we just felt that the balance of complexity and fairness for this group of people, for whom there was such an explicit contract between the state and the individual, led us in the direction of complexity. There are not huge numbers of people involved, but we felt that we would be on pretty shaky ground if we tried to rip up that contract right at the end of their working life.

Those are my remarks about clauses 11 and 12, and schedules 6 and 7. Obviously, I am very happy to answer any questions and to hear any responses.

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

I thank the Minister for that explanation. I was struck by what he said about the 35-year period. The Opposition do not oppose the clauses and welcome the Government’s recognition of the explicit contract between the individual and the state, which is the legacy of a very different social and employment environment. Has the Minister estimated how many individuals will have paid the reduced rate election outside of the 35-year period that the Government have set? Does he think that is a significant issue?

Generally, we welcome the Government’s approach. The Minister is right that it adds a little complexity. Complexity is to be deprecated where it can be avoided, a point that he has made on a number of occasions, but like him we think that, given the circumstances in which the reduced rate election was paid, it makes sense to proceed as the Government suggest. We support the clauses; I simply ask whether there are any issues with taking into account only those people who have made reduced rate election contributions within the previous 35 years.

Steve Webb (Liberal Democrat, Thornbury and Yate)

We estimate that the number of women reaching state pension age in the single tier who have ever had a reduced rate election is about 80,000; we estimate that the number with a current or lapsed reduced rate election who would get less than in the current system if we did not have these measures is about 16,000. There are about 60,000-odd who once paid a reduced rate election and have not yet retired, but who will get more. The fact that their contributions fall outside the 35-year limit means that they have had another 35 years since the reduced rate election lapsed to do something about their situation; they will also have made contributions during the years before they were married—essentially, there has been plenty of time for them to do something about their pensions.

The rest of the debate is in Hansard.