Pensions Bill

House of Lords, 24 February 2014.

Report (1st Day)

Baroness Hollis of Heigham (Labour)

I am grateful for the tolerance of the House in allowing me to delay speaking for a moment or two while noble Lords are leaving the Chamber. They are clearly underwhelmed by the issue that we are about to debate.

I strongly welcome the new state pension. Pensions are attached to the waged labour market. Only one job in four created since 2008 is, according to the Work Foundation, permanent; 1 million or more are zero-hours contracts with no certainty of any work at all. Hundreds of thousands of others are short-hours contracts and, along with other non-standard employment patterns such as term-time working, job sharing and so on, comprise 40% of all jobs—I repeat, 40%—as employers seek to match a flexible and irregular labour force to flexible and irregular demand.

Part-time work and flexible work may suit, and does suit, many women, students or older people on a pension. Those jobs are in cleaning, catering, domiciliary care—involving 150,000 people—hotel and retail, and are usually paid at around minimum wage level. Very many of those people will not be building a state pension. Our pension structure, both state and private, has not yet caught up. It is 10 or 15 years behind as the plates shift in the labour market.

This amendment, which is permissive, seeks to put a pension floor under workers who may work in several mini-jobs and put in quite long hours—30 or so a week—but who cannot, under rules set out decades ago, build themselves a new state pension. If they are in one job with sufficient pay they will build a state pension, but if they are in several jobs with identical pay they do not. If your Lordships agree today we can begin to do something about it.

Under Governments of both parties we have sought to credit people into the national insurance system for a state pension where, for good reason, people are not in waged work. They include mothers of young children, disabled people and carers. Universal credit, which I strongly support, will credit another 0.8 million people into national insurance, I understand.

So where are we? From 2016 you will need 35 years’ worth of credits or payments into the national insurance system to get a full state pension. If you are unemployed and on JSA, and later on UC, you are credited in for free. If you have a child under 12, are a grandparent caring for a child whose mother works or are on disability benefits or carer’s allowance, you are rightly credited in for free. Your Lordships have over the years been at the forefront of pressing all Governments to bring such groups rightly into the national insurance system. If you earn above the lower earnings limit, or LEL, at £5,700 a year you come into the national insurance system for free. If you earn more than £7,500 in a single job you come into the NI system but pay. If, however, you work 30 hours a week and earn £11,000 a year but in several, splintered jobs, you cannot add the pay together to get above the LEL. Come retirement, you do not have a decent state pension.

Hence this amendment. It seeks an entirely permissive way in which to future-proof our state pension structure for those in the new flexible economy who work in and combine mini-jobs, by allowing them to combine the earnings from several jobs for a pension if that takes them over the LEL at £5,700. In the past, perhaps 50,000 people, mostly women, were affected, especially in rural areas, as they stitched together a patchwork of cleaning, fruit picking, bar work and so on, and they relied instead on their husband through the married women’s dependency pension. That pension, which would have protected her, is being abolished. She—or you, or we—is on her own and will not get any state pension from her patchwork of mini-jobs. From now on she gets nothing at all. The reason is that the labour market has changed dramatically in the past decade or so with the growth of zero-hours and short-hours contracts.

Short-hours contracts guarantee part-time work for three, 13 or maybe 23 hours. Zero-hours contracts, however, do not guarantee you any hours at all. You may in practice work 10, 15 or more hours fairly regularly. Equally you could find at the beginning of your shift, 10 minutes before you are due to start work, that there is no work for you: you get no pay and go home. I understand that every Domino’s Pizza worker is on a zero-hours contract—ZHCs—as are hundreds of thousands of staff in McDonald’s, Boots, Burger King, Subway, Wetherspoon and Sports Direct. They work in food joints, call centres, customer services and domiciliary care; they are cooks, cleaners, drivers and waiters; they are agency workers—almost all of whom are on zero-hours contracts. Most are on, or on around, minimum wage. Far from this being a shrinking sector of the market, the number of such contracts is increasing rapidly and very many of those workers will not be building a new state pension.

How many people are affected? Labour force statistics show 250,000—from a very small sample—but everyone, including the ONS itself, thinks that this is a severe underestimate. The chartered institute of personnel directors polled 2,000 employers and believes that about a million people are on zero-hours contracts alone, excluding other short-hours contracts. The research of the Resolution Foundation and the Work Foundation works with these figures. The independent research by Mass1 of 5,000 union members for Unite includes all types of short-hours contracts, including zero-hours contracts, and estimates that they affect 5.5 million people. Some zero-hours contracts are in better paid IT or FE and above the lower earnings limit. Some may offer regular work; some may go to people who are in their 60s and are happy to amplify an existing pension. But how many who do need to build a pension are earning below the lower earnings limit of £5,700 in one job? Of these, how many are running alongside it another job, also below £5,700, which, added together, would bring them into the NI system and give them a pension? Of those, how long may they work in this way, outside the NI system, so that over the years ahead they cannot make good their shortfall? Finally, of those in several mini-jobs, how many may none the less come into the NI system through credits, because they have a child or because they are on universal credit?

My data come from all the existing research that I am aware of. With the different sample sets and with cross-cutting the findings—which I have done as honestly as I can—I can only make an estimate, so I apologise that the data do not allow more precision. Half of those under the age of 30—3.75 million, the Mass1 survey suggests—are on short-hours contracts of some form or another. Usually, they will not get credits, not even for children, or qualify for UC if they are single people, which they usually are, and living at home, as often they are. From the personnel directors’ survey of zero-hours contracts, nearly 40% work under 16 hours a week, in other words, below the LEL. Of all part-time workers in April 2013, 30% earned below the LEL, the entry point to NI, according to Unite. A third of those run other part-time work alongside their first short-hours jobs and two-thirds of those second jobs are at minimum wage or also below the LEL.

Such patterns of work may continue for many years. It is not a question of this being temporary, for students who will soon be in full-time jobs. Such patterns may continue for many years. The chartered institute of personnel directors’ polling of employers shows that 40% of zero-hours workers have been with their employers for five years or more and 20% for 10 years or more. In that time, most of them will not be building up a state pension. If in that period they cannot earn above £5,700 in any one job, they will not qualify for an adequate state pension, whatever their total wage. I calculate as best I can—it is a guesstimate—that perhaps 250,000 people, very often in their 20s, are working in two or even three part-time jobs, each of which is below the threshold but which, aggregated, could bring them into the NI pension system. Most want but cannot get more hours in any one job. They might earn £11,000 from two jobs and may even pay tax, but they cannot build a state pension for the simple reason that their wage comes from two jobs, not one, and they are not allowed to put them together.

In the past, we were told that their pay could not be aggregated for national insurance purposes because you could not divi up employers’ national insurance among different employers and that, in any case, the numbers were small, were temporary, were declining and UC would sort it. Not one of those statements do I believe to be true, and we need to rethink the issue.

UC will indeed help some and I welcome it, but it will not usually help single people—the largest group—nor usually women without younger children or households where the joint income, including his income, floats them off UC altogether. Nor are the numbers small and declining: I estimate the figure to be some 250,000, and it is growing. Given the real-time information built into UC, we now know who gets what without burdening employers. In other words, the old obstacles to aggregation have gone. In any case, do we actually need an employer’s contribution? After all, those on benefits such as JSA have no employer, do not pay and are in the system, and those in a single job earning £7,000 or so do not pay but are in the system.

This Bill rightly—and I congratulate the Government on it—brings 4 million self-employed people into the new pension system without an employer’s contribution but paying just £2.70 a week. We could bring short-hours

workers, including zero-hours contract workers, into the system by credits, as we do the unemployed, or by payments, such as with the self-employed. We could use voluntary buy-back NICs when people approach retirement, except that the Government currently will not allow us to do so because it is not possible to go far enough back. The amendment does not propose a particular solution, although I can think of several. We need departmental resources to see which makes best sense. The amendment as moved is permissive and would cost no money at all.

It is said that future regulations may allow this sizeable cohort of people—I believe there are a quarter of a million or more at any one time and perhaps several million people over their working lives—to come into the NI system by whatever route any future Government may choose, or indeed not choose. It would mean that in future, if we wanted to address this issue, we would not need primary legislation because a permissive power would be built into the Bill—a statement which could be drawn down in any future policy development. Zero-hours and short-hours contracts are a growing part of our deregulated labour market.

On 5 February the House of Commons had a debate on job insecurity. Vince Cable helpfully has a review of zero-hours contracts under way, reporting, I understand, at the end of March. Needless to say, every single speaker in the debate at the other end ignored the issue of pensions. Every single piece of research—there are about half a dozen—on zero-hours contracts that I have read ignores the issue of pensions. However, we have a Pensions Bill and making this permissive amendment to it would have the DWP poised to respond swiftly to the BIS review.

The amendment would help to future-proof the Bill and allow us, should we see fit following Vince Cable’s review or beyond, to put a pensions platform under thousands of people who are poorly paid and deeply insecure with fractured work and yet are often unable to move on to better jobs. Why should they lose their state pension because we want services and employers want flexible staff around the clock? That should not cost them their pensions. It is the dark side of the flexible labour economy. This afternoon, with your Lordships’ agreement, we could do something about it at nil cost. Therefore, I beg the Minister to accept the amendment and to take this power for the future. We should not turn our backs on some of the most vulnerable and insecure workers in the country. They have difficult working lives. Let us not blight their pensions as well. I beg to move.

Baroness Drake (Labour)

My Lords, a sustainable welfare system needs to be affordable, but it also has to be inclusive and responsive to the realities of the contemporary labour market. For a long time, the national insurance and state pension system has been exclusive, indeed unfair, in its application to a particular group of workers, mainly women—a community which the department estimates to be about 50,000 and consisting of people who undertake mini-jobs. Each job delivers earnings below the lower earnings limit of £5,668, the access point for the national insurance and state pension system, but there is no provision for people with these mini-jobs to aggregate their earnings

in a way that would allow them to enter the national insurance system. For example, a woman with two part-time jobs, earning £100 a week from each, will not accrue national insurance and pension rights unless she is covered by some alternative crediting arrangements. Someone earning £110 from one job would accrue. Yet £100 equals about 16 hours on the national minimum wage, so a person with more than one such mini-job could be working a significant number of hours.

Mini-jobs may be driven by caring responsibilities, work availability and, more recently, the increasingly common phenomenon of the zero-hours contract. Some of these women could gain state pension through their husband’s entitlement, but from 2016 they will not be able to build up an entitlement through their spouse because the new single-tier pension allows women to accrue pensions only in their own right. My noble friend Lady Hollis demonstrated the example of women in households who no longer have young children and whose spouse’s income floats them off universal credit being locked out of the pension system. The Bill makes the default position of entitlement through their spouse for many women disappear, which gives the problem fresh urgency.

My noble friend Lady Hollis has long campaigned to have this unfairness addressed and lists the rebuttals she has faced over the years: that it is not reasonable to try to share employers’ national insurance across mini-jobs; that the women will not want to pay class 1 contributions; that there are not very many of them; that their situation is temporary; that they have time to make up missing years; and, if all else fails, that there is pensions credit.

However, the urgency and the scale of the problem have increased exponentially since my noble friend started her campaign and those rebuttals are no longer valid. A much larger number of people with mini-jobs are affected as a result of the growing use of zero and short-hours contracts, where workers have little or no control over the hours they may be offered in any one week. The Office for National Statistics estimates that 250,000 people worked on zero-hours contracts between October and December 2012. However, its survey relied on people understanding that they were on zero-hours contracts, and the ONS has conceded that that may well have resulted in the true figure being substantially understated and that it may be much higher. The ONS is now running a survey to,

“obtain robust data directly from employers”.

As my noble friend said, the Chartered Institute of Personnel and Development suggested that up to 1 million people—around 3% to 4% of workers in the UK—are on zero-hours contracts.

The zero-hour mini-job problem is now systemic in nature. According to the Government’s workplace employment relations survey, in 2011 23% of workplaces with 100 or more employees used zero-hours contracts. Surveys reveal sector concentrations too: 61% of domiciliary care workers in England were employed on zero-hours contracts; and Unite and others report a high incidence in low-paying sectors such as the docks, retail, catering and social care, and they are not restricted by age. These workers face weekly insecurity

in hours and pay and many are not building up entitlement to national insurance benefits. The DWP and the Government will have to address a problem that now has scale, is systemic and does not interface with the national insurance system.

When launching his consultation on zero-hours contracts, the Secretary of State, Vince Cable, said:

“It is clear that they are much more widely used than we had previously thought”,

and further that:

“Our aim through this consultation is to find which options best prevent any abuse of zero hours contracts while maximising the opportunity and flexibility such contracts can present”.

This suggests he believes these contracts will be a widespread and sustained phenomenon. The noble Lord, Lord Freud, in his normal straightforward manner in Committee when responding to my noble friend Lord Browne, recognised the growing evidence of zero-hours contracts. He said that,

“the Government have estimated their costings and needs, on the basis that it is a tiny minority”,

and that this basis,

“will be undermined. He certainly makes me even more uneasy about the neglect of this group than I was before we discussed the issue today”.—[ Official Report , 18/12/13; col. GC 332.]

As my noble friend has said, little is said about the implications of these contracts for people’s access to the NI and benefit system. Universal credit may be a work in progress but meanwhile many people will be disadvantaged. A solution is needed so that those in mini-jobs and on zero-hours contracts are not excluded from the pension system. The noble Lord the Minister in Committee argued that the new systems—universal credit, real-time information and single-tier pensions—may provide a new opportunity to address this problem and to find a way of dealing with it. He said that the department intended to look more broadly at crediting arrangements to examine the possibilities of modernising and simplifying the arrangements. He was, however, reluctant to offer a timetable, implying it could take years.

Universal credit may or may not be available to help some of these workers in due course, but given the delays in rolling it out, realistically it may be several years beyond April 2016. We cannot wait that long. We need a solution that will work sooner. In April 2016 women will lose their default protection of building a pension entitlement on their spouse’s NI record; and those trapped in mini-jobs, including zero-hours contracts, are growing in number and will be excluded. A key criterion for the reform of the state system, often referred to by the Prime Minister, is that it must work for women. In this instance, it clearly does not. As my noble friend has clearly pointed out, there will still be young and single people in mini-jobs denied access to the pension system which the universal credit system does not resolve.

Already for many workers on zero-hours contracts who are low-paid, the interaction between variable hours of work and the tax credit system can be a source of concern, particularly where their hours do not fit the guidance from HMRC on regular, usual or

typical hours. Eligibility under universal credit, while it is not based on a certain number of hours worked and will be based on real-time information provided by employers to the Revenue, is unlikely to be without significant problems for women and for workers on zero-hours contracts.

The new single-tier pension will be extended to cover some 4 million self- employed people—people who were previously only eligible for the lower basic state pension—a development which is to be welcomed. The political will existed to improve their position. Where is the political will which we need to deal with those doing mini-jobs, whose numbers have increased exponentially to millions?

We need a timely and fair response so that the national insurance state pension system is able to reflect the developments in the labour market and to cater for those in mini-jobs. My noble friend has suggested ways which the department could work through to find a way forward. The state pension system has not sufficiently evolved to be responsive to the modern labour market. With zero-hours contracts and mini-jobs, the scale of disadvantage embraces not only the 50,000 mini-job holders originally identified by the DWP but also the thousands—potentially millions—impacted by zero-hours and short-hours contracts.

Lord Morris of Handsworth (Labour)

My Lords, in supporting this amendment I am pleased to follow my noble friend Lady Hollis. I know that she has marshalled the arguments and found the evidence, which she has advanced with authority and passion. Nevertheless, in this debate I seek to reinforce two points that I feel strongly about. First, all the evidence tells us that many people will be adversely affected by not having national insurance credits, not only while they are in work but, most importantly for this Bill, when they move into retirement. Secondly, for too long we have known that this situation is occurring, but we have made the excuse that not many people are in mini-jobs. That argument no longer holds good. We are told that they are here today and gone tomorrow, so we have avoided tackling the problem.

We must remind ourselves that the economy is changing. It is more demanding and is now a truly 24/7 economy which has to be serviced, so those who are affected by the Government’s lack of effort to find a solution to the problem are hard-working people who deserve not just our praise, but our recognition that they, too, should enjoy the same rights and security as others. The answer we have received so far is that they are only part-timers, although it is recognised that many are earning less than the lower earnings limit. The evidence tell us that many are on low pay and that people have not just one mini-job, but two or even three of them under so-called variable contracts spread over five, six or seven days a week. More than that, although they are in work, they are insecure and many have no knowledge of what they will be expected to do next week or the week after. They suffer the inconvenience of not being able to plan their lives and look after their families. People in mini-jobs are doing what the Government have asked us all to do—to be flexible—but of course flexibility in this instance does

not provide the security of universal credit or jobseeker’s arrangements. In fact, these people are being penalised for doing exactly what is required to maintain a stable and robust economy. In reality, this group of people should enjoy a system of deferred credits as they are making themselves ready for work for when the economy gathers momentum, as we all know it will.

I said earlier that we have not tackled this problem because we believe that not many workers are involved, but the numbers have been played down. The DWP states that 50,000 people are affected, and this figure has been widely cited by Ministers in both Houses. However, as my noble friend Lady Hollis set out so clearly in her evidence, that figure of 50,000 is a gross underestimate of the number of people in so-called mini-jobs. I suggest that anyone who doubts the number of people involved visits the interchange at Bank DLR at around 5 pm on any working day. Thousands of financial sector workers flow off the DLR only to be replaced by thousands of cleaners and maintenance workers flowing back to service the offices of Canary Wharf and elsewhere in east London. However, that is not the end of their day. Many return later at night to clean hotels and shops. This can be seen wherever there are offices, factories, shops and restaurants in the towns or cities of the United Kingdom. It is a universal pattern of work that has evolved in the past half decade.

I understand that it has been said that providing fairness to people in mini-jobs will add to the work and put considerable stress on employers, and that the computerised systems of government departments cannot cope with the strain. The technological strain is nothing compared with the mental strain and insecurity of the people who are trapped in these so-called mini-jobs. The DWP and HMRC can resolve this problem. All that is needed is some joined-up thinking. They can resolve it, because we are talking about the lives of thousands of people and about fairness. If they are not provided for today while at work, society will have the responsibility and duty to provide for them in retirement.

In seeking to tackle in-work poverty, the Government are rightly proud of raising the tax threshold incrementally to those earning £10,000. However, what is the point of seeking to tackle the scourge of in-work poverty through the tax threshold system by creating poverty in old age through the Pensions Bill? There is not much point at all. In the past, Ministers have argued that this problem of crediting people with multi-jobs may place a burden on employers. The price of not placing a burden on employers is the price of placing a burden on the whole of society in the years ahead, as some of these workers become pensioners. With part-time working and zero-hour contracts on the increase, this is a reasonable expectation for any civilised society to place on them.

In the lexicon of today’s employment pattern, we hear the language of “mobility”, “flexibility” and “creativity”, but for the economy to thrive and deliver its full potential, management too must break out of its silo mentality and be creative and flexible in its ideas, as it seeks to determine how a reward package can and should be made, to ensure that we provide not

just for today’s but for tomorrow’s pensioners. At the very heart of this must be the transferability of national insurance credit. It is simple. All we need are the two major departments of state to sit down, have a conversation and, of course, seek knowledge based on the experience of the people who are at the receiving end of these mini-jobs.

I strongly believe that we should make policy on what is right and fair for the workers affected. By any logic, the Minister must admit that it cannot be right that someone can be unemployed and get a credit, but get nothing for having some type of work—so-called mini-jobs. These workers do not seek favours. On their behalf, I hope that this House will give them fairness.

Lord German (Liberal Democrat)

My Lords, the issues raised by this amendment are important, and I congratulate the noble Baroness, Lady Hollis, on her dedication to the issue over many years. She kindly told us in Committee how she was rebuffed by her own Government and today she repeated the argument that they used against her: one could not reasonably divvy up an employer’s national insurance—she used those words today again—if there were two or more such jobs. She further told us that women would not want to pay class 1 contributions. For that reason, this is an important issue. We are looking at people being able to contribute to their own pension and get the credits that they need to win a full pension in under 35 years.

Much of the discussion that noble Lords have heard today and in Committee hasbeen about the way that people behave individually in response to the issues in front of them and about how people’s live are dealt with. The problem that we face is that there are no reliable statistics or evidence that show how individuals’ behaviour works. It is clearly possible—I heard it both in Committee and here today—to illustrate that in a way that works to the best of the argument that says that we need to move on this swiftly because there are so many people involved in a particular category. I do not mind people making contributions about the way people behave, will want to behave or are forced to behave, but I want to know how we can sort this problem out and do so in a realistic way that will result in a concrete outcome.

We are bound to hear more and more about zero-hours contracts. They are not a new phenomenon. Over the past 70 years, the notion of a job for life has all but disappeared. More and more people are spending time in self-employment, many people have more than one job and more people have part-time jobs. The single-tier pension itself is designed in such a way that an individual with a more varied work history will be able to build up their national insurance records to achieve the maximum state pension outcome, provided of course they get credited for their national insurance contributions.

The crucial issue, therefore, is whether universal credit will pick up and deal with this issue. I suspect that the answer given to the noble Baroness, Lady Hollis, when she raised this issue with her own Government, was that this is a very typically difficult issue for HMRC, given the range of information that

it would require from every company in the land about who they employed and that it would have to combine the results and put them into a single file. That is of course precisely the process that is taking place, and will take place, through universal credit, which will pick up levels of flexible income including, by implication, that relating to zero-hours contracts. It is interesting that the lower earnings level, below which you do not have to pay or get credit for national insurance contributions, is £5,772 per annum at present. The Labour Force Survey figures show that those on zero-hours contracts work, on average, 20 hours a week at £9 an hour, which is enough to exceed the lower earnings limit. If the figures we have before us are to be believed, most people will be receiving enough income to receive the national insurance contribution.

The other issue about universal credit is that it will look very carefully at how it credits people and bring, as we have heard, another 800,000 people into the crediting system. For example, a single person without savings, earning below that £5,772 per annum level, will be eligible for universal credit and thereby eligible for the national insurance contribution. The question that I have to ask my noble friend is about the delivery of universal credit. In Committee, the Minister said it would be delivered in 2016-17 and the noble Baroness, Lady Hollis, said in 2019-20, although she hoped it might be earlier than that. I apologise if it was somebody else on her Benches but those are the sorts of span. If we believe my noble friend, and it is 2016-17, will this problem be dealt with from the outset by those who are then brought into the universal credit system? If that is the timetable, I ask noble Lords to consider how long it would take to put in the interim solution. In effect, what is being asked for is an interim solution between now and when universal credit comes in for a pensions system that comes into play in 2016.

What is the interim position? Do we need to ask HMRC to invent a system for itself? When the noble Baroness, Lady Hollis, asked the Labour Government for one in their time, they rejected it. I believe they said that it would be cumbersome and expensive. Do we need to have that in place or could we be reassured that, almost within the very short period of the implementation of the single-tier pension, universal credit will be in place in a sufficient and timely position so that the vast majority of people who are occupying two or more jobs that produce an income over a year of less than £5,772 at the current rates will be able to be credited? That is the key question.

Lord Forsyth of Drumlean (Conservative)

I did not participate in Committee but I am listening to my noble friend’s carefully constructed argument. Is not the point about this amendment that it is permissive? It simply provides the Government with an alternative; it does not oblige them to do anything. I cannot really understand why my noble friend is opposing the amendment while advancing that argument.

Lord German (Liberal Democrat)

It is because we have a response in place, which is the universal credit system. What matters more than anything is that the system is in place in time to capture the people who will be most affected

by this in the implementation years, from 2016 onwards. That is the fundamental question and I await the answer in my noble friend’s response.

Lord Browne of Ladyton (Labour)

My Lords, I support my noble friend’s amendment—and, having listened to the contribution of the noble Lord, Lord German, I am delighted that I do not have to answer the questions that he posed. I suspect that the noble Lord who is the Minister for Welfare Reform had wanted to avoid having to give a date as to when the universal credit system will be functioning well enough to provide the sort of functionality that the noble Lord, Lord German, seems to think that the alternative to this amendment requires. I will listen carefully to the Minister’s response and write down any date that he gives us in relation to that. It is also a pleasure to follow my noble friend Lord Morris, who speaks with significant experience of, and great authority about, the workings of the modern labour market, and who has assisted us greatly in understanding the need for this amendment.

As my noble friend said, this issue was debated in the Commons and in Committee at some length. I have considered carefully the various government responses, as my noble friends Lady Hollis and Lady Drake clearly have. They are to be congratulated for having produced here what could be described as an elegant, permissive, statutory device that adds to the Minister’s armoury in his desire,

“to seize this issue head-on”.—[ Official Report , 18/12/13; col. GC 328.]

He used that phrase in our debate when he expressed equal concern—the words are mine—as the rest of us about this issue. I believed, as did all those who were present debating the issue, that he shared our concerns. Indeed, in his contribution to the debate he indicated why he had come to that conclusion.

In support of the arguments that I set out in my own contribution in Grand Committee, I simply want to make three points today. First, the phenomenon of people working in two or more low-earning jobs is not a limited one. They are often on zero-hours contracts but certainly on short hours, with each job under the level at which national insurance contributions are made, and are therefore not building up a contributions record towards the state pension. Nor indeed is it a temporary phenomenon, as has been argued, often coming at the end of a working life. Nor is it an experience limited to rural communities, although it is very prevalent there.

Since I shared the content of my overheard conversation on the Transport for London overground train, I have consciously inquired of young people whom I meet in this city and back home in Scotland how many of them are working for more than one employer. For noble Lords who have not heard this short anecdote, I will repeat it. A few days before we debated this matter in Committee, I overheard a conversation among three young people on an overground train as I was making my way home from your Lordships’ House. It was very clear to me that they had all been working together in what I suppose we would call a mini-job and that they each had two other jobs.

What was significant about them was that two were graduates and the third certainly had a tertiary level of

education. I found that surprising. I do not know why I found it surprising, but it caused me to inquire the same of other young people, and I have come to the view that this is the norm for thousands of young people in the first phase of their employed life, even for graduates. It is a significant feature of a flexible labour market and, along with zero-hours contracts, it is part of the reason that politicians, particularly Ministers, and employers celebrate its flexibility. Undoubtedly the number of people in this situation is growing, not declining.

The question of numbers leads me to repeat a point I made in Grand Committee, which has already been made by my noble friends. The Government assert that there are about 50,000 people in this category. I am not convinced by their estimate of the scale of the problem. That is based not on my experience but on evidence that has already been referred to. We await the outcome of the—I think still anticipated—BIS consultation on zero-hours contracts, which was promised in October and is due to report by the end of March, but I have not seen a lot of evidence of it. We should reflect on the fact that in the fourth quarter of 2012, the ONS estimated that there were 250,000 people on zero-hours contracts. However, a contemporaneous survey of employers by the CIPD estimated that in fact the figure was around 1 million.

As we have heard, the union Unite estimates that as many as 5.5 million people are employed on such contracts up and down the UK. Following the CIPD estimate, the ONS conceded that the Labour Force Survey, which is based on responses by individuals, more than likely understated the numbers. The ONS then announced, as my noble friends have told your Lordships’ House, that it would change the way it collected its data from autumn 2013,

“so as to obtain more robust data”.

The importance of this contradictory information is not that it goes directly to the heart of the estimate from the Government, but that clearly it must have informed the Government’s estimate. None of the estimates that the Government have for the scale of this problem is at all reliable. Therefore, your Lordships cannot be convinced that a strategy based on unreliable statistics is a reliable strategy.

Finally, the Government’s responses appear complacent. Steve Webb, the Pensions Minister, suggested in the Commons that there was only a tenuous link between having multiple jobs below the LEL and being unable to build up the required 35 years’ contributions, and referred to this problem as a temporary phenomenon. In our debates in Grand Committee, the Minister promised that universal credit would resolve the issue. The noble Lord, Lord German, has already gone through the pros and cons of that in some detail, and my noble friend Lady Hollis significantly undermined that argument by pointing out the categories of people who are in these jobs who would be denied universal credit in the first place and therefore the consequent crediting of national insurance contributions.

I say with respect to the noble Lord, Lord German, that that is the one point of our argument that he did not engage with. Even if universal credit is the answer for some of those people, it cannot be the answer for

all people in this category, and in the absence of reliable statistics, it is not easy to see what proportion of people would benefit from a universal credit system that met the coincidence of engagement with the challenge that the noble Lord, Lord German, set out.

What do we need? We need an alternative. We can have no confidence that the approach of either the Pensions Minister or the noble Lord, Lord Freud, will be sufficient. If it is not, the net effect will not only be to deny access to the modern pension system to a significant number of people, most of whom will be the least well paid working people in our society. As the numbers grow—and they will—it will also, in the long term, severely undermine the pensions policy that is now agreed across your Lordships’ House, because it will increase the number of people who have to depend on means testing in retirement.

We support the amendment tabled by my noble friend. We want to make it clear that this is a solution for now, in the context of the Bill. We hope the amendment will be agreed and will become law. It will then be for the Government to take it away and for the Minister to seize the opportunity to use it to address the issue head-on.

Lord Freud (Conservative)

My Lords, I thank the noble Baroness, Lady Hollis, for the amendment which gives an opportunity to debate again a most important issue which is close to her heart and with which I am sympathetic. Over the years we have had quite a few discussions on how the issue is best addressed.

Single-tier reforms strengthen the contributory principle and reduce disparities in outcomes between individuals. They are designed to fit with the working lives of today’s young people, who should find it much easier to plan for the future, counting on a full single-tier pension. At first glance, it may appear that the national insurance treatment of those in low-paying mini-jobs is at odds with these principles. However, I would like to explain why we think mini-jobs are not the problem they might seem to be and why, looking at how to adjust the national insurance system to combat this perceived problem, we may end up with solutions which create more problems and knock-on impacts than they solve.

The noble Baroness has been as assiduous as always in exploring all the sources to illustrate her case for change. Her central estimate was that 250,000 people would be affected. I continue to be confident in the department’s estimate of the number who—if we were to aggregate their earnings in the way proposed—would gain that extra qualifying year. That number is some 50,000 at any one time, which is fewer than one in 500 workers. This number makes perfect sense when you look at the opportunities the national insurance system provides for gaining state pension qualifying years. The entry point for workers is through the lower earnings limit, which is set at £109 a week. This is £40 below the primary threshold which is when national insurance starts to be paid. At the national minimum wage, this is just 18 hours a week for a year or six

months of full-time work. There is also a comprehensive crediting system that recognises caring responsibilities and those unable to work.

The 50,000 figure is a snapshot from 2012-13 and individuals may gain a qualifying year in other years. In the single-tier system, full pension entitlement is achieved after someone has built up 35 qualifying years. People can therefore spend a third of their working lives outside the national insurance system and still gain the full single-tier amount. This was a deliberate part of our design, to recognise that people have increasingly varied careers and working lives, and yet can still reasonably count on a full single-tier pension in their retirement planning.

My noble friend Lord German inquired about the timetable for the introduction of universal credit. We are planning to pull that in for the bulk of people, virtually everyone, in 2016 and 2017. That would certainly include everyone in the workforce. The numbers beyond that are some of the people who are currently on ESA on a long-term basis in the support section.

If we were to take a similar snapshot to that of the 50,000 in 2012-13 but in 2017, we would find that individuals with the same characteristics may well be getting a credit through universal credit. This will bring at least a further 800,000 people into national insurance credits. For instance, the partner of the claimant or those on very low earnings—below the lower earnings limit—will be brought into universal credit because the Government believe that it should pay to work.

We have had a parallel discussion on zero hours, which has clearly been a source of concern around the Chamber today. There is concern at one level from the employment practices perspective. As noble Lords are fully aware, BIS is consulting on this issue. There is also a degree of uncertainty around the prevalence of this practice and whether it is increasing; as noble Lords have pointed out, the ONS is looking closely at evidence for this. However, we know that the proportion of women with two or more jobs is similar to the proportion of 10 years ago; in other words, around 5% of all workers. We are not talking about using the word “exponential”, which I have heard around the Chamber once or twice this afternoon. The number of women in full-time work rose in the past year by more than 270,000, and the number of women in two jobs actually decreased in that year by 25,000.

Clearly, when we look at zero-hours contracts, I need to make the point to the noble Baroness, Lady Drake, that I did not indicate in Committee, nor have I indicated, that the number of individuals on those contracts was small or in some way insignificant. However, the question at hand here is about access to the national insurance system and there is no evidence to suggest that being on this type of contract presents barriers to entering the national insurance system because of low pay.

Figures from the Labour Force Survey and the Chartered Institute of Personnel and Development—the CIPD—both show that those on zero-hour contracts work an average of around 20 hours a week, as my noble friend Lord German pointed out. This is enough to exceed the lower earnings limit even on the national

minimum wage of £6.31 an hour. Data from the ONS suggest that the average wage for those on a zero-hours contract is nearer £200 a week. In response to the point of the noble Lord, Lord Morris, the

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show that full-time employment in the year is up 408,000, and part-time employment has gone down by 12,000.

I understand that the amendment is permissive, and even without any evidence of a significant problem one might think it would be helpful to increase the Government’s options in this respect. However, it is simply not necessary, given the extensive regulation-making powers already available, to modify the crediting system. In response to my noble friend Lord Forsyth, it is hardly useful to have redundant legislation on the books.

This amendment would allow people to opt in to have their earnings aggregated. It is not clear that this can be achieved without requiring a very high evidence base. For instance, if we introduced a system where people could effectively send in the employee’s rate of national insurance, we introduce incentives for employers to play the system. Some will contrive to avoid employers’ national insurance but without disturbing their employees’ national insurance position. The noble Baroness, Lady Hollis, suggested that the employer need not pay national insurance. However, even if that were the case there is still a significant burden on the employer. We also could not verify the wages without disproportionate cost. This would incentivise people to underreport earnings to get into the system on the cheap.

Aggregating earnings would have significant consequences for employers, including those people who would not now consider themselves to be employers. Take, for instance, the position of a woman whose job it is to clean private houses for a few hours each day of the week. The nature of the work would mean that she is likely to be employed and could have a number of jobs with different households. Under aggregation, each of those households would need to operate a Pay As You Earn scheme. They would need to contact HMRC to open such a scheme. They would then need to obtain and familiarise themselves with payroll software and use it to report earnings under real-time information to HMRC every time they pay their cleaner.

In response to the question from the noble Lord, Lord Morris, on joined-up thinking between the DWP and HMRC, I am pleased to say that we are actually working—I suspect for the first time—in a very joined-up way to get the RTI system to work. However, we do not want to require employers who would otherwise not have to have a PAYE scheme to open one up on an ad hoc basis. The point discussed by the noble Baroness, Lady Hollis, which would allow people to class themselves as self-employed, seems slightly odd given the concern about job security that motivates the debate we have just had over zero-hours contracts. Blurring the line between employment and self-employment is a minefield from a tax policy perspective. It introduces incentives to create more mini-jobs and to play the system.

The processes required to capture and collate earnings from people in mini-jobs cannot be achieved by simply tweaking the system. Moving to the aggregation of earnings from mini-jobs can only sensibly be considered

under the work on the operational integration of income tax and national insurance contributions announced at Budget 2011 by the Chancellor. As noble Lords will be aware, national insurance liability is calculated on a per job basis but income tax liability is aggregated across all sources of earnings so the issues are similar. The Government concluded that given the scale of the change that operational integration would entail and the amount of change that employers are already managing, including the introduction of real-time information, they would await further progress on these before moving forward on tax/national insurance integration.

In the short term, we are not complacent and are determined that people who do the right thing and work are treated fairly. Beyond a radical overhaul of state pensions in this part of the Bill, specifically to make it fit for today’s workers, I have described work that this Government have undertaken to expand crediting coverage for low earners through universal credit and improving monitoring of zero-hours contracts.

This amendment may be intended to place a marker to nudge the Government into taking action, but it comes without strong evidence of a problem and the type of action that it promotes is piecemeal tinkering, which could create perverse outcomes and new unfairnesses, especially in the tax and national insurance system. I hope that the noble Baroness will withdraw her amendment.

Baroness Hollis of Heigham (Labour)

My Lords, first, I thank very much my noble friends Lady Drake and Lord Morris for their powerful and moving speeches. I thought that their contributions were extraordinarily impressive, and I am sure that they moved many people in this House.

I shall address first the comments of the noble Lord, Lord German, many of whose points were dealt with very effectively by my noble friend Lord Browne from the Front Bench. Basically, he ran two arguments. First, he said that most of the people concerned would be on UC, and he pressed the Minister instead on UC. Secondly, he commented on the problems for HMRC in combining possible jobs. On the first argument, on UC—and I am very much in favour of universal credit—we agree the stats are that another 800,000 should come into the NI system as a result of crediting arrangements. That is great, but the point is that UC is income-based and that income is surprisingly low. No one has mentioned that today. For example, if you are a single person and you earn more than £4,000 a year in any job, well below the lower earnings limit, you are above the level for universal credit so you do not get credited in. If you are a married woman, your husband is in work and you have two children—I am aiming for a generic family, if you like—and if he is earning more than £12,000 a year, that family is not entitled to UC, apart from housing benefit. She may be earning £4,000 or £5,000, but that will not give her a credit through him. Those two groups of single people and married women, which my noble friend identified and I seek to identify, are both outside the reach of UC. What is worse—and neither the Minister nor the noble Lord,

Lord German, mentioned this—is that it is happening at the same time as we are withdrawing the married woman’s dependency pension of 60% that she would have had as an alternative and could have relied on. That is what is new. If she cannot get into the pensions system through universal credit, she cannot get in at all, and that has been created and constructed by this Bill.

The noble Lord, Lord Freud, said that he was confident of his figures of 50,000 people, but he was equally confident about two years ago when we were debating welfare reform and the figures then were 20,000 or 25,000. They have doubled exponentially in the past two years or so, and they may go on to grow equally geometrically, as opposed to arithmetically, over the next few years. He says that his stats are broadly in line, but I do not know about that. His stats are based on labour force statistics offered by the ONS, which the ONS now says are unreliable; that therefore means that his stats are unreliable. My stats of 250,000 are the best that I can do with all the evidence there is, overlaying different subsets. I accept that, but I am as confident as I can be on the evidence that exists that at least 250,000 people and maybe more—it is an increasing problem—are outside the national insurance system and will not be credited in either through UC or any caring responsibilities.

The noble Lord quoted average income. An average income is pulled upwards by the proportion of people who work in IT, for example, which is highly paid, or in further education, where they are paid piecemeal. The Chartered Institute of Personnel and Development—which the Minister quoted several times, although he did not quote this—says that 40% of the 1 million people who are employed work below 16 hours per week. We know that the majority of those are on, or on around, the minimum wage: for example, in jobs in domiciliary care, hotels, waiting, driving or security. A mean average is no use in this, because the figures are skewed hugely upwards by people in IT, who may be very well paid—perhaps at £50 per hour—and come within zero-hour contracts. We need to see how many people are below the LEL in one job and work in a second job that is also below the LEL, which together would bring them into the NI system from which they are currently excluded. I repeat: that figure is likely to be 250,000—nearly every single person and most married women.

The Minister says that it would produce all sorts of perversities and paradoxes. There is no greater perversity than the situation in which, if you are unemployed and on JSA, you are credited in for free national insurance, but if you work 30 hours a week in two 15-hour jobs, earn £11,000 and pay tax, you cannot get into the NI system and get no state pension. Which of those is the perversity? Do not work and you are in for free; or work as best you can, by putting jobs together, and you are outside the system. Is that right or decent? It is not. I would like to test the opinion of the House.

Baroness Hollis of Heigham (Labour)

My Lords, I should like first to say a word about procedure. I am glad to see the noble Baroness, Lady Anelay, in her place; that is helpful. This is a paving amendment that the Public Bill Office assures me is appropriate. Amendment 21 in this group—and only Amendment 21—is consequential on Amendment 2. Therefore, any vote on the first amendment is, in the words of the Companion, also a vote on its directly consequential amendment—although it does not, of course, determine any other amendments in the group. If it were not directly consequential there would be no point in a paving amendment. As I have carefully taken the clerk’s advice on this, I hope that the Minister and the House will agree with my statements. If the Minister does not agree that Amendment 21 is consequential, perhaps he could indicate so now because I would not wish to waste the House’s time.

Lord Freud (Conservative)

I am happy to accept it as consequential.

Baroness Hollis of Heigham (Labour)

I am grateful to the noble Lord, as this allows us to have a substantive discussion on bereavement—which I know concerns many of your Lordships—in good time and not in the late hours this evening. I know that the Minister is sympathetic to the situation of distressed children and widowed parents. I hope that I can refer generally to widows, as there are three times as many women who are bereaved with children as men—and I know that the Minister means well by them. I hope that the House will agree that this is neither a party matter nor, as it is permissive, a cost matter, as the cost is almost too low to estimate.

This is a modest amendment that seeks to help widowed persons avoid additional pressure in the most stressful and distressing period of their lives. Three-fifths of bereaved parents are in work at the time of bereavement—virtually all fathers and around half or so of mothers. Most fathers with a terminally ill wife continue, or continued, to work. Most mothers, however, give up their jobs to care for their husband. Fathers would normally go back to work after a couple of weeks; indeed, they are often anxious to do so. Some mothers may feel able to do so as well, depending on the age of their children and the nature of their job. However, many widowed mothers were not in work, because they had younger children, or they had stopped working to become carers and—this is key—many mothers who were in work when their husband died drop out of work for some time while they support their children. If they return to work later, it may be to a different job, to one that is part-time or less demanding. Whereas work seems to be essential and continuous for fathers, it becomes secondary and broken for bereaved mothers.

The Government are reconstructing bereavement benefits, with more money paid as an up-front lump sum and less as a monthly payment—which, at £400 a month, will be paid only for 12 months and topped up by universal credit while the claimant is out of work. After 12 months, bereavement support payments stop and, if the parent does not return to work, she may draw her full income from UC. Being on UC normally entails work conditionality—entering or re-entering the labour market. The Minister has agreed—for which I am delighted—for kinship carers, work conditionality associated with claiming UC should not apply for 12 months after they have taken on the care of children. But—and this is the point of my amendment—work conditionality for widowed parents, unlike for kinship carers, will kick in after six months, not 12 months, while they are still on bereavement benefit. That benefit runs for 12 months precisely because the Minister, in all decency—and I respect him for it—recognises that they need that support for 12 months. Surely work conditionality should be aligned with those 12 months.

The Minister said in Committee that he thought that six months’ relief from work conditionality while on bereavement allowance, if the claimant receives some UC top-up, was “generous”. I confess that that shocked me. It is generous only by comparison with the situation of someone who is not a bereaved spouse, and I think that that is not a proper comparison. If the mother has returned to work, or wants help to do so earlier than that—and some will—that is fine, but I do not think it right and decent to require her to attend work interviews and full work conditionality and job-hunting after six months, when she has grieving children who need her more than ever.

In Committee, the Minister justified this by saying that work conditionality after six months,

“is necessary to help them adjust and regain control of their lives”.—[ Official Report , 15/1/14; col. GC 146.]

I was shocked by that as well. From my experience, the exact opposite is true. If work conditionality kicks in at six months while the woman is still on bereavement benefits and she is not ready for it, she loses what little control she has in handling her family life. Instead, that power is transferred to the DWP—perhaps to a 23 year-old young man in a local benefit office who, I expect, will be well intentioned until the pressure of targets bears down on him. He is probably a young man without children and without any experience of bereavement. It is assumed that he knows better than she does what is best for her and her children in their grief. I hope that he asks his own mother for advice, because he probably will not have a clue.

I do not think that that is acceptable. We are turning this young man at the age of 23 into her parent and treating her as the child, denying her, as a parent, the ability to look after her children in the way she believes is best. This is a sort of cruel-to-be-kind, tough-love philosophy towards a grieving widow and severely distressed children. Tough love is perhaps fine for youngsters who are on JSA and do not want to get up in the morning, but we are bullying into seeking work a widow with children who is still numb with grief and hugely distressed. We really cannot have that.

In this paving amendment and the consequential amendment attached to it I am not arguing that a widow’s benefit should be increased, although personally I would support that. The amendment is not about more money; it is about allowing widows to decide what is best for them and their family in the immediate aftermath of bereavement. For me, the immediate aftermath is the first year during which all the anniversaries occur—Christmas, his birthday and the anniversary of his death. I know, as do many of your Lordships, that that first year is the hardest.

I ask your Lordships to put themselves in the widow’s place. Her husband’s death may have been sudden, due to an accident at work or in the car, and she is still traumatised by the shock, or he may have died after an illness such as a stroke or cancer and she is exhausted through caring for him. She is wiped out and her mental and physical health is pretty fragile. It is just at this time when, although she is exhausted herself, her children are distraught and most need her. Children I know who have experienced the death of a parent have regressed into bed-wetting, nightmares, broken sleep and school phobia. They have lots of mysterious tummy aches and frequent headaches, and they display challenging and clearly needy behaviour. Irrationally, they suffer anguish that in some way they were responsible for their father’s death. They feel guilty that they had never told the lost parent how much they loved him and are fearful that they may lose their mother as well.

Older children worry about their mother’s safety if she is late back, or they fear they may lose their home. They are profoundly upset a second time over at their mother’s grief. Stoically they try not to weep, as that makes it harder for her to cope. “He is not here to hug me”, said one young girl. They dream of him and experience severe depression. Children need their surviving parent to be physically available for them. They need the trust that exists between a child and his mother to discuss their father’s death. Emotional availability follows from that. In Committee, the noble Lord, Lord German, quoted very movingly from research into the effect of bereavement on children’s later lives, from delinquency to poor mental health and suicide risk, and the noble Baroness, Lady Finlay, mentioned cases of multiple deaths.

Every family is different, as is the work status of any bereaved parent, but this amendment, at no cost, permits the bereaved parent to decide what is appropriate for her and her family. We know that currently, bereaved parents do not take all the time off that they could from work. They do not exploit the system; they do not abuse it; they do not milk it. They want to work when they feel fit enough and their children are steady enough, but only they know that, not the DWP or the local benefit office. That is the point of having 12 months of bereavement payments. Insisting on work interviews and work conditionality at six months, or even leaving it to the discretion of 23 year-olds in local offices, adds stress to the suffering of the parent and distress to the pain of the child. We really should not do that.

The amendment would give widowed parents a breathing space from work conditionality alongside a bereavement payment while they rebuild their fractured

lives. This House has always looked out for widows and children and I hope that it will do so again today. I beg to move.

Lord Freud (Conservative)

My Lords, the House may find it helpful to know that, although I do not agree that a change to conditionality in respect of only this specific group of amendments is appropriate, I am proposing to conduct a wider review into the circumstances where children could be in considerable distress and where it is clear that conditionality should not be applied. I am not attempting to curtail debate but it may be of advantage to the House to have that information in order that we may have a more informed debate on this group of amendments.

Baroness Finlay of Llandaff (Crossbench)

My Lords, I have Amendments 18, 19 and 20 in this group. I am grateful to the Minister for informing us of his proposal to hold a review of the level at which conditionality is set in relation to considerable distress in bereaved children. I appreciate his concern and the time that he has spent with me and others in looking at the problems of bereaved children.

However, I must point out that bereaved children express emotions differently from adults. Indeed, the most distressed children often appear almost blunted to the death of the parent and are simply quiet, withdrawn and can even appear disinterested. I hope that there will be no attempt to assess an individual child’s distress because I can foresee the problem of some families blaming that child for not caring enough, and therefore blaming that child for somehow not falling into a group that could have had more benefit. Sadly, transference occurs in bereavement and sometimes bereaved parents project their anger at the death on to the way in which the bereaved child is behaving and are on a very short fuse with the child, which compounds that child’s isolation. These are complex situations and there are serious long-term sequelae.

When a parent dies the support that the state offers must be easy to understand. It must support the widowed parent in providing support to their grieving children. Noble Lords are well aware that the death of a parent places enormous pressure on the rest of the family. The surviving parent has to both provide stability to children and adjust to life as the sole carer and earner while dealing with their own grief as well as that of their children. Quite often they have had no time to begin to adjust to impending widowhood—for example, in any sudden death, whether it is through a road accident, manslaughter, murder, suicide or whatever—and yet their children’s need for stability following the death of a parent makes it vital that the surviving parent is available to them, is present and is able to respond to their needs, which may change almost from minute to minute, hour to hour.

Stopping payments after only one year will have a significant impact on family finances but the major disruptions include the widowed parent often having to increase their working hours to replace lost income, thereby being less available to the children at the time when they are most in need of support. Amendment

18 seeks to increase the period of time that the bereavement support payment is payable to at least three years or until the youngest child has reached the age of seven, whichever is the longest period.

Can the Minister clarify the cost analysis that underpins the decision to end bereavement support payment after only one year, because one year is much too short to address a family’s needs? Removing the payment at the first anniversary of the death adds an additional pressure on the family at a time that is already very emotionally difficult when they often relive the acute episode surrounding the bereavement. Many families report that the second and subsequent years following bereavement are even harder than the first because support from friends and family tends to disappear and children can experience late effects of dealing with grief and bereavement.

The current allowance is paid until the youngest child leaves full-time education. The proposal to reduce this to a period of just one year is a dramatic change. Data provided by the Childhood Bereavement Network suggest that only one family in 28—that is, 4%—claims for less than one year. Most families would therefore receive payments under this Bill for a much, much shorter time than they would under current arrangements, especially if the children are younger. In Committee I described the shortening of this period of time as cruel. A year is a very short time in the life of those bereaved, whether adult or child.

The current benefit is paid until children leave full-time education in recognition partly of the complex emotional needs of young children. Removing the payment when the dependant children are very young is particularly worrying. Pre-school children become very clingy when they realise that one parent is no longer around. They require stability and security. The grief of losing a parent is challenging enough without compounding the disruption caused by the stress of worsened financial hardship for the surviving parent with the premature ending of a bereavement support payment.

Amendment 19 seeks to clarify that the bereavement support payment will be payable to a widow who is pregnant at the time of her spouse’s death. Can the Minister confirm that when the spouse of a pregnant woman dies the allowance would be payable to her? Amendment 20 seeks to clarify what support would be offered in the tragic event of both parents dying. Can the Minister confirm that in the event that both parents die, the guardian of the surviving children under the age of 18 will be eligible for any bereavement support payment which would have been paid to a surviving parent had that parent not died, and that the guardian has six months in which to lodge the claim? Can the Minister also confirm that the changes to the bereavement support payment do not affect the guardian’s allowance? Finally, can the Minister confirm that changes to the bereavement support payment do not affect child benefit?

Lord Rix (Crossbench)

My Lords, I cannot claim to be either a young widow or to have young children. My children are actually middle-aged but my wife died a year ago last week and I know perfectly well that a

year is really not sufficient time to put to one side all the problems which arise from the death of a partner. I was married for 64 years and, both for my children—middle-aged as they may be—and for me, the grief continues. I know perfectly well that if you are a young widow with young children, to be asked to change your life or to look at the possibility of going into work after six months is absolutely absurd. I support both these amendments with all my heart.

Earl of Listowel (Crossbench)

My Lords, I am sure that the House will want to reach a conclusion on this debate as soon as possible, but as treasurer of the All-Party Parliamentary Group for Children I would like to express my strong support for Amendment 21, tabled by the noble Baroness, Lady Hollis. I also pay tribute to the Minister for the care with which he has clearly been considering this very sensitive matter. That does not surprise me given that his great-aunt, Anna Freud, set up the Hampstead War Nurseries towards the end of the Second World War. She dealt with children who had been separated from their parents and provided them with much needed care. She also made forensic observations of what happens when a child is separated from the parent, looking at the different sequelae of those changes. What she discovered was that while she could feed the children well and provide exercise so that they were healthier, the emotional damage done to them as a result of being separated from their parents was simply huge. The concern must be that if widowed parents are not well supported and given all necessary consideration they may emotionally withdraw from their children, with all the adverse consequences highlighted by the noble Lord, Lord German, in Grand Committee.

Bishop of Wakefield (Bishop)

My Lords, having been one of the signatories, along with 26 other Anglican bishops, to the letter that went to the Daily Mirror last week, I am loath to speak too much about amendments to government legislation. However, on this particular occasion, because bereavement support is such a notable part of our business and ministry, I am very bothered about the direction in which the legislation is going.

I should like to reinforce what was said earlier by the noble Baroness, Lady Hollis, about cost. It seems to me that it is not a question of cost but of how long support is given to people. What many clergy learn and what people often forget is that, as the noble Baroness said, it is not just the first three months which are difficult—the problems continue throughout the whole of the first year. More than that, it is a matter of showing support for people over the whole period of time that the emotional pain of bereavement continues to be very severe. The issue of supporting people financially has an impact on that emotional pain.

Speaking on behalf of a group of people who spend so much of their time trying to support those who have been bereaved and who need to understand how they can be helped, we might take good note of these amendments. They will not cost more money. They have been tabled simply to try to offer more support over a longer period of time—not only in the

raw first year, but over the first three or four years, and particularly where young children are involved and the emotional impact is even greater.

Lord German (Liberal Democrat)

My Lords, these are delicate and sensitive issues. I pay tribute to the noble Baroness, Lady Hollis, for using her ingenuity to make sure that these issues are right at the forefront of our discussion on Report. The major issues have already been raised and were expressed from these Benches both at Second Reading and in Committee. The evidence I quoted from the research literature on these matters identifies absolutely clearly that one needs to be extremely careful when dealing with these very difficult times for families. Indeed, what we should recognise is that some people may be able to regain a sense of normality more rapidly than others. You cannot make a distinction or see clear lines between one family and another. It seems that this is very much about the circumstances in which people find themselves and how those positions are managed and handled. The issues raised by these amendments have to be a source of major concern to Members on these Benches, and as I say, they were raised earlier.

I am grateful to my noble friend Lord Freud for giving us an opportunity to discuss these matters in considerable detail between the Committee stage and today, and to help shape a Government response which adequately meets the concerns expressed. An adequate response from the Government has to satisfy the discussion we had in Committee and be highly relevant to the issues already raised today in this Chamber about these sensitive matters, particularly relationships within families. I want to see a process that meets the issues and was raised in that evidence. This is what I want to challenge and talk to my noble friend about.

As many people will know, a review has little relevance if it does not result in concrete outcomes. My discussions so far with my noble friend have given me considerable confidence that we will see a changed regime at the end of the review. There is a second issue, which relates to speed. We need to make sure that the regulations, associated not really with this Bill but with universal credit, are in place and that there is a chance for people to put their views on record to that review. Quite clearly, a normal government review of this kind would not give a swift response, but we need to get that response in place before people are brought into the universal credit fold.

Therefore I have a number of questions about my noble friend’s review. The first is about scope. So far today, the amendments have been about specific parts of the conditionality regime. Will my noble friend confirm that his review will not just be about the children of married parents, but also of those in a partnership where one is bereaved and the children find themselves in forms of distress? Will it also include situations where a child loses a brother or sister, or those who flee from violence? Violence is often a cause of people fleeing, and of great distress to those children, yet distress to children is a difficult thing to define—as the noble Baroness, Lady Finlay, described. Is it not

rather about the situations in which children find themselves in distress? Is that the purpose of this review? Is it about where and how we see that distress occurring, so we describe the circumstances, rather than the actual distress itself? That would be crucial in ensuring that we get a powerful outcome.

Does my noble friend have the powers to bring in new regulations without putting them in the Bill? Does he have the power to make sure that the results can be put into regulation and guidance, and would any new powers be required for whatever circumstance might be the outcome of his review? What is the timetable for implementing the review’s recommendations, in particular so that any family brought into the universal credit fold can be brought into the new proposed conditionality arrangements which might come out of the review? Some outcome timetable would be very useful to understanding, especially as we have a need for speed.

What assurance of independence and impartiality does my noble friend have within his review? Would he consider appointing an external expert adviser to accompany him on this review? It might be sensible to consider someone who has first-hand, practical experience of distress situations in which children find themselves. How will the Minister conduct evidence gathering? It is important that stakeholders and Members have views and can express them to the ministerial review. Who will the Minister conduct his evidence gathering with, and will he include evidence gathering from a research base, which we heard about today and which I referred to in Committee?

Finally, how will the review’s findings be reported to this House and Parliament in general? In particular, how will Parliament have an opportunity to discuss its outcomes? Given the opportunity for a wider-scoped review which will touch upon some of the situations which are excluded from the amendments before us now, it is possible that we may see before us a real opportunity for a concrete examination of these issues and, more importantly, some specific concrete outcomes which will make changes to the situation before us.

Baroness Sherlock (Labour)

My Lords, I am not surprised, having sat through Committee, that this has been such a powerful debate. We have had some very important, moving and well informed speeches at all stages of the Bill touching on these subjects. I am very grateful to the noble Baroness, Lady Finlay, and to the noble Earl, Lord Listowel, for sharing their expertise in these areas, as well as to the noble Lord, Lord Rix, for being willing to share with us the experience of bereavement and its ongoing impact on one’s life at any age.

My noble friend Lady Hollis laid out the case very strongly at the outset. I am delighted that the Minister is interested in reviewing the impact on families with a distressed child and how that relates to conditionality in the future. It is an excellent commitment and I look forward to seeing the results of it. It is up to my noble friend Lady Hollis to make a judgment on this but I do not think that that in any way precludes the need for this amendment, which is about a very specific category of person—people who are bereaved and who may find themselves going on to claim universal

credit but who would normally be expected to go out to work because they had children of school age. Both of those things are important.

I still have with me the very powerful speech made by the right reverend Prelate the Bishop of Derby at Second Reading, in which he laid out his experience of pastoral care for the bereaved, something reprised very effectively today by the right reverend Prelate the Bishop of Wakefield. I do not need to say very much more about why this matters. Many Members of this House have had experience of bereavement in one way or another and there can be few more important issues than how a country supports its citizens when the worst of all possible things happens to them.

The Government’s case throughout this debate has been that these bereavement reforms are not really about money. From 2016 to 2020, they estimate the changes will cost an extra £110 million, because they will protect payments under the current system, but that thereafter, in total, there will be small savings. The argument is that these are reforms not cuts. The Government have said throughout that they want to simplify the system and put resources where, in their view, they are most needed: as a short-term intervention to allow a bereaved spouse or civil partner to deal with the immediate costs of the death of a partner. If support is needed in the longer term, that is what universal credit is for.

Amendments 18 to 20, in the name of the noble Baroness, Lady Finlay, address the question of how long bereavement support should be paid for. In Committee, the noble Baroness laid out some very moving circumstances in which families could find themselves, clearly drawing on her own clinical experience. I know that the Minister expressed sympathy with what she said, and it may be that his review of distress will address that. I would be interested to see what he has to say when he comes to speak.

Amendments 2 and 21, in the name of my noble friend Lady Hollis, quite specifically seek to relax the work conditionality requirement for those in receipt of bereavement support payment. This is particularly important for widowed parents. There is a difference between those who do not want to work and those who would like to work, or go back to work, but who have been forced to recognise that the reality of the state that their children are in is such that they have to choose—of course they will choose their children and not work, unless they have literally no choice. Some parents will need a longer period, both to adjust to their own grief and shock and to deal with the grief and shock faced by their children.

It has already been pointed out that the regulations for universal credit mean that kinship carers are exempt from work conditionality for a year from the time that they assume the care of the child. This was agreed by the Minister—under the persuasive pressure of my noble friend Lady Drake and others—in recognition of the fact that adults need time to adjust to being, effectively, a single parent. Why should the same principle not apply to bereavement? I would be very interested if the Minister could answer one question about his review: does he intend to change the regulations to

allow bereaved parents specifically to be exempt from conditionality? In Committee, he said that he was reviewing this and that he wanted to change the guidance given to decision-makers in jobcentres. But that is a very different question altogether. I can see why that might be the way forward for distress in general—after all, distress comes in very different forms and some judgment would have to be made about when the family was distressed. The awful thing about bereavement is that it is horribly clear: one is either bereaved or one is not, and I therefore do not think there is a need for the kind of flexibility that might be needed in other circumstances.

I also worry because I have heard many cases, as I am sure other noble Lords have, where young jobcentre officials, with the best of intentions, ended up making bad decisions because they did not properly understand what it was like to be a single parent trying to juggle more than one child and a part-time job. That person could of course simply say, “I am sorry but despite whatever you say, I am not going back to work because I have to prioritise my children”. If that happens, their benefits get sanctioned. They can appeal, but do we really want them to have to go through that six months after losing their husband, wife or civil partner? When 58% of appeals against sanctions on jobseeker’s allowance are successful, how much are we willing to bet the farm on the effectiveness of decisions by individuals in jobcentres? In my case, it would be not very much.

At Second Reading the noble Lord, Lord German, used words such as “harsh” and “cruel” to describe the decision to force widowed parents back to work after six months. I believe that he was right. He cited the research, which he touched on again today, showing that outcomes for children very much depend on the effectiveness of the remaining parent in coping. That is partly about their availability to children. All that this amendment from my noble friend Lady Hollis does is to ask that those widowed parents who need to claim universal credit alongside bereavement support payment to make ends meet should not be required to go back to work for 12 months. After all, the Government have decided to focus their support on that first 12 months, so surely they should be willing simply to stretch this for the same period.

I have heard it said that a year is too long: since employers do not offer bereavement leave for a year, why should the state? It is because employers cannot do that that so many parents end up giving up their jobs when they lose their spouse or civil partner. The combination of burdens is simply too much to cope with. Universal credit is meant to be the safety net for those very parents, and it must be here. This amendment specifically recognises that the Government are planning to recycle all the resources spent on bereavement to be able to create this new system. All it does is to give them the power to recycle that money in whatever way they want, such that that reform should include this small change—that for 12 months after losing one’s husband, wife or civil partner a parent should not be forced back to work.

We should be clear that a decent society will not put bereaved children in the position of having lost one parent only to find that the other is not able to give them the level of care that they need at this crucial

time. Many people in this House will know that losing a parent in childhood is a life-changing event: one never gets over it. We cannot protect children from that horror but when it happens, please let us at least say that we will support the remaining parent as best we can. It is clear that this House does not think that the Government have got this part of the Bill right. Amendments 2 and 19 give them the means and the incentive to go away and get this right. I urge the Minister to accept them.

Lord Freud (Conservative)

My Lords, losing a spouse is one of the most tragic circumstances that a person will have to endure and, as such, it has been recognised since the outset of the welfare system that the bereaved need some financial assistance. Bereavement benefits form a crucial part of state support but limited reforms over the years have led to a complex system, which has not kept pace with changes in the benefit system or wider changes in society. This legislation will address this. With a simple payment structure focusing support on the period immediately after the bereavement and a single contribution condition, the new bereavement support payment will be far more easily understood and claimed. It will mean that more people will benefit, particularly younger widows.

A claim to the new bereavement support payment is made by the surviving spouse or civil partner. The noble Baroness, Lady Finlay, raised those extremely tragic cases where not only is there one bereavement but the surviving spouse dies shortly afterwards. She is of course right that there can be no expectation that a claim is made by the surviving spouse in such circumstances. I take this opportunity to make it absolutely clear that, as with the current benefits, there will be arrangements in place for claims to be made posthumously. Every year, the Department for Work and Pensions receives around 10 posthumous claims to bereavement benefits made on behalf of a bereaved spouse who has subsequently died. There are regulations to ensure that appropriate payment can be made in respect of these claims.

Currently if a person who would have had an entitlement to a bereavement benefit themselves dies, regulations allow the DWP to appoint a third party to act on their behalf and make a claim. Once a person has been appointed to act on behalf of the deceased they have six months from the date they were appointed to make a claim. The amount awarded following a posthumous claim would match the entitlement the deceased would have had if they had made a claim. I can assure the noble Baroness that the regulations will be updated so that this practice will continue under bereavement support payment. With regard to guardian’s allowance and child benefit, the payment of these benefits is not affected by the award of current bereavement benefits, and this relationship will remain unchanged under bereavement support payment. It is worth saying that, due to the design of new bereavement support payment, such posthumous awards will be higher than under the current system because the new benefit is made up of a higher initial lump sum and monthly instalments.

Let me now spend a little time explaining exactly why we have decided to design the benefit as a higher lump sum and 12 subsequent monthly instalments. This is an issue that the noble Baroness, Lady Finlay, and the right reverend Prelate the Bishop of Wakefield raised. The counterargument is that bereavement has long-term implications for families. I understand this, and I realise that after a single year bereaved families will still be suffering and will be in need of support.

My point—and I hope it does not sound too counterintuitive—is that, looking at the welfare system as a whole, I am convinced that the best way to provide this support is through a shorter-term payment of bereavement support payment and a longer-term income replacement benefit in the shape of universal credit. If we pay the bereavement support payment for a longer period—for example, for three years—it could be done in a cost-neutral way only by reducing our proposed payment and spreading it over a longer period. This would mean providing less money in the period directly following bereavement. From the responses to the public consultation and the findings from the independent social research, it is clear that, regardless of household income, the death of a spouse has a significant financial impact which is acute in the initial months following bereavement. That is why we have decided to focus the benefit on the shorter term when the need is greatest. Let me be clear that this shift is not about saving money. In fact, we will be spending £110 million more over the first four years after implementation than if the current system had rolled forward.

My greatest concern about extending the duration of the bereavement support payment is when you consider the welfare system as a whole. The fundamental design principle of the new benefit is that, as a short-term payment designed to address the additional costs of bereavement rather than everyday living costs, it is clearly distinct from income replacement benefits or pensions. This means that we can fully disregard the payments from universal credit and benefit cap calculations, and this will clearly benefit the less well-off. For example, an unemployed single parent with one child who is entitled to bereavement support payment could receive £9,800 in the first year. In addition, they could receive the standard allowance and the child element of universal credit, which is more than £7,000 a year. On top of this, they may also be able to access other support such as help with housing costs. By extending the duration of the payment, the benefit would resemble an income replacement benefit and would need to be treated as such in the calculation of the benefit cap and universal credit. If we assume that we carried on paying the instalments at the rate of £400 per month, universal credit recipients in the poorest income quartile could lose around £4,800 per year and up to £15,000 by the third year. Our analysis shows that any increase in duration accompanied by removal of the bereavement support payment disregard from UC and taxation of instalments is effectively a transfer of money from poorer to richer recipients.

We are also concerned that a longer payment would be likely to be classified as a survivor’s pension under EU social security co-ordination rules. This would impact on the cost of other benefits, notably healthcare,

sickness and family benefits. Analysis shows that if bereavement support payment is treated as a survivor’s pension and is paid over a three-year period, the costs of the bereavement benefit could increase by £400 million, which is four times higher than our planned investment of £110 million.

I turn to the conditionality regime, the issue which noble Lords spent most of this debate on. Our debate in Committee made me go back and think about this whole area from scratch. I will go into the final element—the review—which I touched on earlier and which is a way of thinking about the whole area, not just for this narrow group.

Bereavement has a long-lasting effect on families. We should never lose sight of the fact that the support we provide should not just be financial but help the bereaved to adjust to their situation and regain control of their lives. This process of adjustment varies hugely according to each individual; in particular, bereaved parents draw on a wide range of support mechanisms to get themselves and their children through. For those who are not in work or who have stopped working, part of this process of adjustment is looking to return to work. We know that long periods out of the labour market can have a negative effect on a person’s emotional and psychological well-being. This is why the Government also have a responsibility to help people regain control of their lives: universal credit helps people to do this.

I turn to the timing of when parents feel they need to go back to work. IFF Research concluded that:

“Most people thought it acceptable for the state to make contact following bereavement to offer employment support”,

as long as the approach was “individual and sensitive”, and,

“the typical timeframe suggested was between six and 12 months after the bereavement”.

I agree that supporting children should be every parent’s first priority. This is why universal credit ensures that bereaved parents are never subject to conditionality for the first six months. After this initial period, universal credit offers tailored support. Parents or lead carers of children under five are not expected to work and therefore will not be required to look for and apply for jobs. For those parents with children over five, work- related requirements are still tailored. Parents of children under 13 will be required to look only for work that is compatible with school hours. Parents of older children may have the hours that they are expected to be available for work tailored to the specific care needs they have in relation to the child.

I stress that we have no intention of requiring bereaved parents with childcare responsibilities to take jobs that do not take into account their children’s needs. This engagement is intended to be supportive—for example, supporting with confidence-building or training where a bereaved parent is entering the labour market for the first time or changing career path. Claimants’ individual circumstances are always considered before conditionality is applied and the current legislation allows for some to continue without any conditionality. A move to a fixed, 12-month conditionality exemption,

as the noble Baroness’s amendment suggests, assumes that bereaved parents do not want the state to offer support in this period. This is wrong—

Baroness Hollis of Heigham (Labour)

My Lords, the noble Lord has misrepresented both my amendment and my speech. I said that many parents would welcome it, but that the decision on at which point within that 12 months they returned to the labour market lay with them, not with the local benefit office.

Lord Freud (Conservative)

The point I am trying to make is that it is far better to recognise that individual responses to grief vary. As a number of noble Lords have said, grief often does not manifest in behavioural and emotional challenges until months or even years down the line, as a child matures. That is why, under universal credit, advisers have the flexibility to personalise requirements at any point, responding as circumstances arise. Where parents are facing difficulties with school, childcare arrangements or other extenuating circumstances, advisers can limit or even lift requirements.

I recognise that the application of that flexibility depends on the ability of those advisers. While I feel that our advisers are able, it is important to ensure that they have the best guidance and training to deal with such difficult cases. That is why we are currently working with experts in the field including the Childhood Bereavement Network, the Children’s Society, Cruse Bereavement Care, WAY and Gingerbread, to ensure that guidance and learning clearly articulate how advisers can identify and support parents in these circumstances, including the particular circumstances in which it would be inappropriate to apply conditionality. Our advisory services are also being repositioned as a profession with a clear career path, accredited learning and ongoing professional development. The learning programme will ensure that advisers have up-to-date skills to deal with any claimant interaction and support them in making relevant and appropriate decisions on an individual basis.

That is the standing position. I now move to the more specific response that I wish to make following our discussions in Grand Committee, particularly in answer to the points raised by the noble Baroness, Lady Finlay. I recognise that there are circumstances in which children could be in considerable distress and in which it is clear that conditionality should not be applied and flexibility is essential. I do not, however, see such cases as being limited to bereavement. There may be other circumstances in which children need additional care—for instance, where a family is fleeing domestic violence.

I assure the noble Baroness that we are not looking for a measure to define “distress”. Indeed, we need to establish exactly what the expression means; we are using it as a shorthand and there may be a much better way of capturing the concept, which is one of the things that a review should do. We are looking to identify specific circumstances in which we could expect a child to be distressed, and in which they will therefore have additional needs that need to be recognised. Claimants would need to demonstrate only the circumstances they are in, not the fact of distress, which is, as the noble Baroness has pointed out, extraordinarily difficult to establish.

I therefore want to conduct a review as quickly possible, in order to embed any new rules in the regime before we take new claims to universal credit from families. That is why I propose to undertake the review myself. I would like, in practice, to conclude that review by June or so. I will report back to the House following that. I am not quite sure of what form that will take but we will find the right form nearer the time.

The scope of the review will include not just where there is a bereavement payment due but where there is the death of a partner, possibly unmarried, where the child’s sibling dies, or where a family is fleeing domestic violence. There will be other examples. We will start with an evidence-gathering phase. I should like to involve Members of this House—one or two have already demonstrated extreme knowledge—but I would also look to engage an expert adviser and to conduct open evidence-gathering sessions, including one for Peers. If that review concludes that changes to universal credit regulations are needed, I am able to bring those forward under the existing powers in the Welfare Reform Act 2012.

I think I have covered the areas raised by my noble friend Lord German. On the point made by the noble Baroness, Lady Sherlock, clearly I am able to commit to this review on the basis that the amendment proposed by the noble Baroness, Lady Hollis, does not go through. I would not be in a position to commit to a review with a changed context because if there is an ad hoc change to a significant proportion of those in the scope, I will have to work out again exactly how to scope any proposal that I have.

Baroness Hollis of Heigham (Labour)

I am sorry, but why? The noble Lord has already made the judgment on kinship parents. This is a permissive amendment, which he can draw on if needed. If he does not need it because of his review he does not need to deploy it. It is there as a safety net, so why is he asking the House to make it an either/or judgment?

Lord Freud (Conservative)

My Lords, this is not a permissive amendment. It makes a change to the conditionality regime for one element. If I need to look at how I do a review, I would have to look again at the specific context of doing this review.

Baroness Hollis of Heigham (Labour)

I am sorry; I crave the indulgence of the House. Let me read the substance of Amendment 21:

“The Secretary of State may by regulation and within the overall budget for bereavement support payment exempt any widowed parent from work conditionality while in receipt of said payment”.

The Secretary of State “may” do that by regulation. As I said, the amendment is permissive. I am sorry that the noble Lord did not, perhaps, fully appreciate that.

Lord Freud (Conservative)

My Lords, let me make my point here. I will have to look again. As noble Lords know, a “may” in this context is a very substantial “may”. I will have to look again at the context in which I would want to

do something such as this. I may very well want to do it, but I cannot make a commitment to have both at this stage. On that basis, I urge the noble Baroness to withdraw her amendment.

Baroness Hollis of Heigham (Labour)

My Lords, I am still slightly baffled by the less than satisfactory response of the Minister. Let me first thank the noble Baroness, Lady Finlay, the noble Lord, Lord Rix, the noble Earl, Lord Listowel, the right reverend Prelate the Bishop of Wakefield and my noble friend Lady Sherlock for their very powerful and moving speeches on something that really matters: trying to protect and support widowed parents for the first 12 months of their bereavement. I welcome the Minister’s offer of a review on distress. However, what he has suggested is so wide that I rather doubt—although I would be pleased to be proven wrong—that he will be able to turn this into effective policy.

I give one tiny example, which I was thinking of as the Minister spoke. He was going to extend this to the distress of cohabiting parents when one of them dies. It is not too far fetched to suggest to the House a situation where a woman was with the father of her child or children in a cohabiting relationship but they then separated. She then had a period of perhaps five or seven years with someone else, to whom the children really connected and related. Then she moved on to a new boyfriend—a new stepfather—for perhaps the past year. Could the Minister tell me which of those three would have to die—forgive the language—for her to be entitled to bereavement benefit under the proposal of distress? Is it the recent stepfather, over whom the children are not especially distressed but the mother is highly distressed; the long-term stepfather, who has helped to bring them up, to whom the children were committed and over whom they are distressed while she is less so; or their natural father, who is giving them financial support and they see regularly? Which is it? I suspect one cannot do what the Minister seeks to do.

Lord Freud (Conservative)

My Lords, I am grateful to the noble Baroness for making the point for me. If we do these things piecemeal, we will not get the right answer. That is why my response to what the noble Baroness, Lady Finlay, said to me in Grand Committee was to think that we need to look at this comprehensively. We need to get this issue right across the piece and understand how to incorporate it as a whole into our conditionality regime. That is the response that I am looking to do, not to sort it out on the Floor of the House where we simply do not have enough information to do it properly at this stage.

Baroness Hollis of Heigham (Labour)

My Lords, I make two points. First, we are not seeking to sort it out on the Floor of the House. I am seeking the consent of the House, if it is so minded to give it, to a permissive amendment, which does not commit the Government to anything they subsequently decide is inappropriate in the light of further research. The second point is that the Minister’s definition of distress is so wide that I genuinely believe, from my limited experience in Parliament, that he will find it very difficult indeed to

turn it into deliverable policy. I am sure he is as aware as I am that it will end up depending on the discretion—he made this point himself—of local people in local benefits offices, such as the 23 year-old who will be interviewing the widowed parent. Is she numb? If so, does that mean she is coping or not caring sufficiently? Alternatively, is she voluble? Does that mean she is coping or not caring? He will have to peer into her soul and we should not go there.

The Minister says that he wants to help widowed parents to adjust, to,

“regain control of their lives”,

with tailored solutions. He is saying that the local benefits office, the 23 year-old, will decide. The 23-year old will turn her into his dependant, reliant on his judgment as to what she should do and what is best for her family. That is inappropriate and improper. You are making the adult back into a child and adding to her stress and distress. The Minister should not be going down that path. He will not be able to do it by clear policy; he will depend on discretion. Neither of those routes is satisfactory for a small and coherent group that we can easily define—that is, widowed parents with children following a bereavement.

The Minister is opposing a permissive amendment dealing with a small, specific group, which he can respond to exactly as he has already helped—and I am glad of it—kinship carers. He has allowed kinship carers 12 months off on work conditionality; he can do the same thing for this very specific group and make their work conditionality freedom align with the 12 months in which they are receiving bereavement benefit. After all, that is precisely why they have bereavement benefit in the first place. If they have it because they need support following their bereavement, at the same time they need the freedom from the additional pressure that the Minister’s work conditionality will ensure.

The Minister said that it was not quite either/or, but suggested that—

Lord Freud (Conservative)

My Lords, I just want to make the point that if you pick out particular groups and have legislation just for them, you end up with the kind of carbuncled benefit system that we are trying to escape from. I am determined to try to build a system that is coherent across the piece, and I want to look at all the situations to make sure that they are consistent.

Baroness Hollis of Heigham (Labour)

My Lords, I understand the Minister’s support for grand schemes. We will see whether the grand scheme of universal credit, which I support, will deliver what he hopes that it does—and I hope it does. But here we are dealing with a situation in which we have kinship carers and widowed parents, and we may be talking subsequently about women experiencing distress in domestic abuse situations, and the Minister is trying to make something coherent. He is trying to fit them into one common mould, but he does not have to. He may come up with appropriate and different solutions for different groups because, as he himself said in his reply, every family is different and may need different help. This amendment would allow him to do precisely that.

The amendment does not cut across any review in any way, any more than his 12-month provision for kinship carers does. It seeks only to protect a small, identifiable and precise group from additional pressures of work conditionality at no cost at all and at a time when they and their children are most deeply distressed. I do not think that they should be put on the back burner for a review that may or may not deliver what I hope the House will think is the right path to take. If the review goes ahead and the Minister does not need the amendment, as it is permissive, he does not need to draw on it. If his review falters, which I think it will because he is asking too much of it, the amendment would give protection to some of the most vulnerable people in our country at the time of their deepest grief.

It is very simple. The amendment is permissive but says that we recognise the situation of widows and widowed parents and will give them, under the new system, one year of bereavement benefits and payments. This amendment asks for that one year, which we recognise is the period of most grief and distress, and that we should also not apply the pressure of work conditionality. This House has always looked out for widows and children, and I am asking the House to do it again today. The amendment is permissive and cost-free, and the Minister can build on it if he wishes to do the review. It is just a small safety net of help for grieving children and their grieving parent. I beg your Lordships to protect them tonight. I wish to test the opinion of the House.

Report (1st Day) (Continued)

Baroness Hollis of Heigham (Labour)

My Lords, like others, I am delighted that we are introducing a new state pension, based on 35 years of contributions, which will help to float older people off poverty and encourage savings. However, if that is to happen, people have to know where they stand as they go along, especially women who may have acquired credits and young people on short hours-contracts, on which we voted earlier today. They need to know how reliably their state pension entitlement is building up and whether they need to take any action to make good shortfalls.

It seems obvious, does it not, that if we want people to build a pension they must know how they are doing, how far they have got and what they may get? We expect this from the private sector. Most of us get not only yearly but six-monthly statements about our ISAs, for example, and how they and we are doing. Usually—not always—it encourages us to save more. We all agree that we need transparency about charges and better information and guidance about our financial choices. The Government set up a money advice service to help people do precisely that.

Along with my noble friend Lord McKenzie, who regrettably cannot be in his place today, I was again taken aback in Committee to learn that there will be no such service and support in the field of state pensions. On the biggest investment a person may have—their pension—which, for many people, will be worth more than their home, they are working blind. People will be working and contributing, or not, and claiming credits to which they are entitled, or not, without any information and guidance to help them until shortly before they retire, when it may be far too late to change the hours of their job or claim a carer’s credit which might have brought them safely into the NI system.

How many women in their 40s and 50s with teenage children know that if they work 16 hours a week at minimum wage they will not usually be building a state pension, but at 18 hours a week they will? How many women know that by caring for elderly relatives for 20 hours a week they could, and should, get a carer’s credit? Not many, yet it is one of the most important things they need to know. How many women even know that they will not get a married woman’s dependant pension from 2016 on? Very few, I suspect. We do not and will not tell them, unless they have the wit to ask, until it is almost too late to do much about it. It is absurd and shameful. The DWP’s refusal to provide a level of service is unacceptable. None of us would accept this from the private sector. Indeed, the private sector would probably be pursued and prosecuted if it behaved like we do.

What is the Government’s position? They will respond to a query, which is likely to come from the alert, educated and informed, but they will not bother to trouble those who most need advice, information and guidance. Those who do not inquire and those who leave it too late are most likely to retire with a pension shortfall. Who are the people who are most likely to retire with a shortfall and who will not know until it is too late? What a surprise—women, I fear.

In Committee, the DWP quoted the cost of providing annual statements as a deterrent—a cost which, none the less, we expect the private sector rightly to bear. I therefore suggest that we consider the “nudge” theory: that if we cannot afford to provide annual, or even five-yearly, individual statements, at the very least DWP sends out periodically a standard letter, in bright bold print, two paragraphs only—I offer a draft— saying for example:

“You are able to draw your state pension at 65. To get a full state pension you need by 65 to have made 35 years of contributions into the National Insurance Fund which pays out your pension. Pension contributions may come from your job or you may be receiving free contributions credited towards your pension if, for example, you have children under 12, you are a carer, you are on universal credit, you are disabled or in other circumstances”.

Paragraph 2 would say:

“You may want to find out how many years contribution you have already built up. If so, please contact us either by phoning us on “x” or online at “y”. If as a result you think you may not have made enough contributions by the time you reach 65, we can send you a leaflet which tells you what steps you can take to build a full pension”.

I offer this template letter to the Government as a possible way forward. One standard letter—a nudge—telling people what they may wish to know, in bold print, going out to everybody at five-yearly intervals from the age of 45. It is a nudge for people to find out where they stand and if necessary to do something about it, to help people to help themselves. Otherwise why bother with a Pensions Bill—one that is more generous and certainly one that I support—if we do not want or seek to encourage people to build a full state pension at the end of it? Why bother? It must make sense to nudge people. I beg to move.

Baroness Turner of Camden (Labour)

I support my noble friend Lady Hollis on this amendment. I am sorry that the noble Lord, Lord McKenzie, is not here to second it, The Government have had a long-term policy—they kept telling us about it at every stage of this Bill—of being in favour of people saving for themselves in addition to having the pensions provided in the Bill. They expect people to save for themselves and they regard the pensions provisions that they are making as a kind of platform from which people can then make savings for themselves.

How are people to save for themselves if they do not have the necessary information about what their entitlement is? The amendment addresses the entitlement to a pension statement and notification of entitlement to a statement. All that is very necessary if people are

to make sensible arrangements for their retirement. I am amazed to think that the Government may not accept this amendment. I hope however that they will because it is in line with their own thinking on the Bill. They want people to save. How do they expect people to save if they do not know what their entitlement is? They have an obligation to tell them what it is. Certainly it happens in the private sector; I belong to a private pension scheme and I get a regular statement as to what my entitlements are. Why can that not be the case for people who are receiving state benefits?

Baroness Sherlock (Labour)

My Lords, my noble friend Lady Hollis has raised some significant questions and I look forward to hearing the Minister’s answers. This amendment follows an ultimately rather unsatisfactory discussion we had in Committee during which my noble friends Lord McKenzie and Lady Hollis, along with the noble Baroness, Lady Greengross, and others tried valiantly to get the Minister to explain exactly when somebody would receive a communication from DWP to warn them that the state pension they would get in future would not be the same as what they might have expected. I went back and reread the record. I think the answer we got was that they would get a statement if or when they asked for it and then normally only digitally. The Minister kindly arranged for officials to explain their communications strategy to Peers, and I am genuinely grateful for that. However I think it is fair to say that the exercise did not entirely allay our fears or perhaps fill out all the gaps in our knowledge. I hope the Minister is looking forward to finding a consultancy fee for my noble friend Lady Hollis for her contribution to what will doubtless be the next mailshot from the department.

In Committee I raised comments that had been made during the Select Committee inquiry and elsewhere from quite a wide variety of bodies about this subject. It is worth highlighting a couple. Citizens Advice has been stressing that considerable complexity inevitably remains in the system because of the transitional provisions. It says that,

“a sustained communications programme could improve outcomes, manage expectations, minimise misinformation, promote action on NI contributions, and support personal saving for retirement”.

That last point is one made by my noble friend Lady Turner. The Association of British Insurers had also stressed that adequate communication was essential because it was important that people did not feel unclear about how much they would receive, and it should be clear that they would need to save. That is a crucial drive behind all of these reforms and the Labour reforms that preceded them. People need to understand what they are going to get to make sure they save enough for their retirement.

The Select Committee certainly found that there was a lot of confusion out there. Many people thought that from now everybody would get £144 a week instead of the current state pension. Many people thought that all means-testing would disappear and that if they would have got more than £144 now that they would lose that in future. The committee stressed how important it was that people have full information about their future entitlement.

I reiterate three simple questions which I raised in Committee; they did not get answered at the time but I think the Minister has had an opportunity since then to reflect on them. First, how and when do the Government propose to contact people to tell them of the changes to their entitlement? Secondly, at what point will the Government contact people who have previously requested and received a pension statement to warn them that it may no longer be accurate? Finally, in setting up a communications campaign on this new scheme, what outcomes are the Government seeking and how will they measure them? I look forward to the Minister’s reply.

Lord Freud (Conservative)

My Lords, the single-tier pension reforms are designed to simplify the current state pension system, to make it easier for people to understand what they will get from the state in retirement. More so than for other reforms, therefore, communication is critical to success, so I certainly share the interest that noble Lords have shown in this issue. Effective communication requires both the right message and the right channel for delivering that message. This forms the basis for our communication strategy to support these reforms, a summary of which I circulated to noble Lords this morning and which will be placed in the Library.

We will deliver a phased approach to our communications, building from Royal Assent towards the implementation of the reforms and beyond. This will allow us to provide accurate and up-to-date information as quickly as possible before we issue more tailored communications through a range of channels to reach all our audience groups.

State pension statements will remain a key communication with future pensioners and will be an important vehicle for helping individuals understand how they are affected by the reforms. The introduction of these reforms gives us the opportunity to radically transform the way we currently provide this statement service. Our ultimate vision is to provide an online system that is integrated with HMRC’s national insurance data, enabling people to access this information at a time to suit them and in a way that allows them to model the impact of gaining further qualifying years.

In Committee I said that we would provide statements that reflect the single-tier rules once we have the new IT in place and individuals’ NI contribution records are complete up to and including the 2015-16 tax year. Prior to April 2016 our plan was to continue to provide statements based on the current rules accompanied by additional information on the single-tier changes to those affected by the reforms. However, we believe there is trade-off in terms of providing information we have available based on current system amounts while trying to minimise the distribution of information that is potentially misleading or simply begs further questions. Noble Lords may wish to note that we are therefore currently reviewing the information we can provide to customers prior to April 2016 to ensure that it is as accurate and helpful as possible. We will make a decision on this by the end of March when we will

make our plans more widely known through discussions with our stakeholders and within our broader communication materials.

The noble Baroness, Lady Sherlock, asked when we might contact previous recipients who will be affected by the changes. We will consider this to be part of the process. It is important to note that our data retention rules mean that our statement IT systems hold only a limited number of historic requests going back a maximum of 18 months, and therefore we cannot contact all previous statement recipients. The statements make it clear that the estimates they provide are based on the current rules and may change if individual circumstances alter or the law changes.

I turn now to the specifics of the amendment. It sets out an approach for issuing periodic notifications to all citizens over the age of 45 advising them of the state pension statement service. The department has previously undertaken various forms of direct mailing to people in relation to state pensions. Indeed, between 2003 and 2006 the department issued many millions of unsolicited automatic pension forecasts across the working age population. Unfortunately, independent research found no real evidence of any significant response to these mailings. Only 33% of recipients could recall without prompting having received the forecast, and only 31% actually read the mailing. More importantly, the research showed that there was no significant difference in the retirement planning actions undertaken by recipients of the forecasts when compared with non-recipients. This, combined with the operational costs, resulted in the termination of unsolicited pension forecasts.

When people receive something that they have not asked for, it is most likely to be forgotten or ignored. However, when people ask for information, they are ready to get it and do something with it. Our communications approach will sow the seeds of the change, setting out the store in the channels that people read and hear every day, providing them with reasons to seek further information for themselves at the right time for them. It may or may not be that the draft provided by the noble Baroness is exactly what turns people towards wanting to investigate, but we will do the research to find out what actually works. The noble Baroness referred to nudge approaches and the use of behavioural insights. We are absolutely committed to testing such approaches. We believe that there is merit in getting messages to people through the newspapers they read and the magazines they buy. We have already seen the success of such approaches and we can see that they do prompt or nudge people to consider their plans for retirement.

Our past experience is not proof that direct mail will never be an effective method of communicating with members of the public, particularly given the behavioural change we are witnessing as automatic enrolment is rolled out. However, undertaking direct mailings comes at a cost, and an initiative such as that proposed in the amendment could cost in excess of £5 million in the first year of implementation alone. Before committing to such expenditure, we think it is essential to test different approaches to raising awareness

of the statement service to understand their effectiveness. Noble Lords will already be aware that I am committed to this type of approach, such as in the support provided for the introduction of universal credit. During 2014-15 we will be undertaking trials of direct mailing alongside other communication approaches. This will allow us to identify how the right balance of timing, message, channel and environment can lead to greater awareness among individuals and encourage them to take action as appropriate. Depending on the outcome of these trials, we will decide which communication approaches are most effective as part of our ongoing communications activity.

Next year we will set a baseline across all our audience group to measure awareness and understanding. This will be remeasured every six months and will be published, which will inform our approach as we refine and improve it. I can assure noble Lords that following Royal Assent we will track levels of awareness about state pensions and the reforms across the population on a regular basis. The research findings will enable us to identify specific groups that our messages are not reaching, or where the messages are not easily understood, so that we can take action accordingly. Our communications strategy is designed to cater for the needs of different audiences. We recognise the need to test our approach as we go, and as part of this we will undertake the trials that I have mentioned. It is right to do this before committing to undertaking full-scale direct mailings, or indeed any other form of communication, which may not deliver any significant increase in awareness or action. In the light of this, I urge the noble Baroness to withdraw her amendment.

Baroness Hollis of Heigham (Labour)

My Lords, I should like to thank my noble friends Lady Turner and Lady Sherlock for their contributions. I understand that the Minister is as committed as could reasonably be expected to trying to ensure that people are aware of and fully knowledgeable about their entitlements. I accept and absolutely understand that there is considerable virtue in having an evidence-based policy by building it up on the results of research into the most effective lines of communication. I also agree that a variety of responses may be wanted, including press, mailings and online, but I have to say that I would worry if it was largely dependent on online information, given what we know about many people’s recalcitrance over using online facilities as UC is rolled out. It may be that it is a generational thing and that over the next decade to 20 years the recalcitrance begins to disappear, particularly if places such as Norfolk end up actually having access to broadband.

My difficulty is that the Minister has a policy premised on the fact that those who know that they do not know will make the inquiry. The problem is around those who do not know that they do not know, and I am not confident that he has in place a strategy to make them aware of it. In the past, the people who were most vulnerable would have been married women who had been in and out of the labour market according to their caring responsibilities. They had a very straightforward safety net by the fact that they could have 60% of the husband’s pension as a baseline, and only if their own contributions exceeded that, as

increasingly they have begun to do, would they draw on their own contributions. That is no longer the case. So the 60% married women’s pension is being withdrawn without, as far as I can see, ensuring that those women know, first, that they are losing what they would have counted on in the past and which is common knowledge, and secondly, what other benefits—or credits, I should say—they may be entitled to claim because that information is not being sent out to them in lieu.

I think that the Minister has a problem here. We are on the same side and I fully accept that he wants to make sure that people are aware of this, but I do not think he really understands what happens when the safety net of the married women’s dependency pension which has existed for 50-odd years is pulled away and women are told that they are on their own. He does not actually know, understand or appreciate what it may be like to find the headspace, resources and capacity to change behaviour in order to build up a pension. I am sure that this is not a gender point, but I really do not think that the Minister understands where women like that may be coming from. In the past, as the Minister will know, we had deficiency notices under NIRS 2. They told you whether you had incomplete NI records. When the computer, on which the Minister is relying so heavily, toppled over in the late 1990s or thereabouts and we could not get it back on its feet for several years, we increasingly lengthened the period during which someone could buy back their NICs or make contributions accordingly to cover the lack of deficiency notices. We were willing to do it then for everybody on an annual basis, as far as I recall, before the computer toppled over, yet the Minister is reluctant to go back to that. I understand the point about mailings and so on, but at the very least I press the Minister to identify in his research the at-risk group. For my money, the at-risk group are women, particularly married women, who had relied on the 60% married women’s pension, who were perhaps unaware in the past of the credits they could have claimed, including carer’s credits, and they are not on the list.

I would like some assurance from the Minister—it could just be a nod if he likes—that the at-risk group in particular can be identified. At 65 or 66, they could find themselves on their own with an incomplete state pension and it is too late to do anything about it because we have failed to keep nudging them. If the Minister could give me that assurance, I would be content.

Lord Freud (Conservative)

I would be very comfortable giving the noble Baroness that assurance. Clearly, a generalised mailing out is exactly what we are concerned about. The evidence is that people will get official-looking letters which they do not look at. We have to find a way of getting to the most vulnerable groups, who may take a Rumsfeldian attitude—they do not know what they do not know—and we have to find a way through that. Therefore, I can give the noble Baroness that assurance. I think we are basically agreed around this Chamber about the need to get the communication right, but we need to do the research. There is no point in us making it up without that knowledge.

Baroness Hollis of Heigham (Labour)

With those assurances, I am content to withdraw the amendment.

Amendment 3 withdrawn.

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

Amendment 4

Moved by Lord Freud

4: Schedule 1, page 31, line 34, at end insert—

“( ) Where regulations under section 22(5ZA) of the Contributions and Benefits Act have the effect that a person is credited, on or after 6 April 2016, with earnings or contributions for a tax year starting before that date, the earnings or contributions are to be treated for the purposes of calculating the rate under this paragraph as having been credited before 6 April 2016.”

Lord Freud (Conservative)

My Lords, in Committee, the noble Baroness, Lady Dean, spoke movingly of the case of a service wife. Her husband, a commanding officer, was stationed in Belize. Travelling abroad with him meant she sacrificed a successful legal career in the UK, but she also gave up the ability to build up her state pension. It gives me great pleasure today to be able to present a means to redress this situation. I need to acknowledge, alongside the contributions of the noble Baroness, Lady Dean, those of the noble Lords, Lord McKenzie and Lord Browne, and I particularly thank the noble Baroness, Lady Hollis, for her forensic analysis of this issue and her persistence in seeking a remedy for this group.

This amendment signals our determination to act. It places a duty on the Secretary of State to make regulations to allow service spouses and civil partners, due to reach state pension age from 6 April 2016, to apply for national insurance credits for periods during which they accompanied their partner on a posting outside the UK. The regulations will make provision to allow credits for periods between 1975-76 and 2010. This will ensure that, even in the rare circumstances that someone has spent their entire working life accompanying their spouse abroad, they will still be able to build the 35-year contribution record needed for the full single tier.

This builds on this Government’s commitment, set out in the Armed Forces covenant, to remove disadvantages that the Armed Forces community may face in comparison to other citizens, and to recognise sacrifices made. We continue to work on the finer details of the scheme, which will be set out in regulations. This will include the manner in which applications will need to be made and the precise start date. From information supplied by the Ministry of Defence, we estimate that up to 20,000 individuals could have a higher single tier pension from these credits.

Key to the impact of these amendments will be how effectively they are communicated. We recognise the importance of alerting people to the scheme to maximise take-up, and this will be incorporated into our wider single tier communications strategy. The MoD also anticipates using the ex-service communities’ charitable network and the Service Personnel and Veterans Agency communication channels. This amendment is also grouped with a small number of

technical, tidying-up amendments to Schedules 1 and 12. These are all either consequential on Amendment 9 or provisions elsewhere in the Bill.

In summary, those who support our armed services abroad should not be penalised. The prospective earnings credit introduced in 2010 helped to ensure that single tier pensioners in the circumstances I have discussed could build entitlement to state pension for years after 2010, but not before. These amendments address this and ensure that people who have accompanied their spouse or civil partner on overseas postings are not unjustifiably disadvantaged. I beg to move.

Baroness Hollis of Heigham (Labour)

I will just say a couple of sentences. I am very pleased indeed that the Government are building on the work of the last Labour Government in recognising the particular obligations that go with the military covenant and ensuring that the spouses of service personnel are not disadvantaged when it comes to a full state pension. I welcome this and am very glad that the department and the Minister have been able to meet the concerns raised in Committee.

Lord Browne of Ladyton (Labour)

My Lords, we welcome the Government’s amendment, which requires the introduction of regulations to provide for spouses and civil partners of service personnel to gain national insurance credits for periods spent on accompanied assignments prior to 2010. As my noble friend has just said, these provisions build on the reforms of the last Labour Government, who allowed credits to begin from 2010. I thank the Minister for the generosity of his remarks about my noble friends Lady Dean, Lord McKenzie and, indeed, his recognition of my own small contribution to this outcome.

However, it would be remiss of me if I did not express from these Benches that we are in no doubt who is entitled to the greater credit for this amendment being tabled. It is my noble friend Lady Hollis who is the heroine of the hour. There is no question that the Government have acted because she raised the issue so effectively in an amendment in Grand Committee. Before she did so—and I am sure that the Minister will confirm this—the Government’s position was an honourable one, but, as expressed on page 33 of the document The Armed Forces Covenant: Today and Tomorrow, they stated:

“At present the Government has no plans to make further adjustments to the tax and benefits system for Service personnel and their families but will keep this issue under review”.

The Minister indicated in Grand Committee that he would review it and his officials have kept us all informed of that review going on and it is to his credit that it has resulted in this outcome.

The Government deserve significant credit for responding in the way they have done and now at least we can say in relation to this issue that there is no disadvantage and that members of the Armed Forces community have access to the same benefits as any other UK citizen. As the Minister has said, the challenge now is to ensure that, of those potential 20,000 beneficiaries, the maximum number benefit from this

opportunity. The current figures for applications for the 2010 credits are disappointing. Either the MoD now needs to build a process for credits to be automated, or it needs to improve its engagement with its own personnel, to inform people of the availability of the credits and to facilitate and encourage take-up.

I accept that the other government amendments are consequential and uncontroversial and we welcome them also.

Amendment 4 agreed.

Amendment 5 had been withdrawn from the Marshalled List.

Clause 17: Effect of pensioner postponing or suspending state pension

Amendment 6

Moved by Baroness Hollis of Heigham

6: Clause 17, page 8, line 31, at end insert—

“( ) The weekly rate is not to be increased under subsection (1) if a person has opted to receive a lump sum.

( ) The amount of any lump sum to which a person who has deferred entitlement to a state pension shall be set out in regulations.”

Baroness Hollis of Heigham (Labour)

My Lords, we move to a new subject: deferred pension and how it may be taken, whether as income or lump sum. Over the past 15 years, most pensioners have for the first time been lifted out of poverty. In 1997 nearly half of pensioners were below the poverty line. It is now about one in seven: 14%, compared to nearly 50%. Pensions have risen three times faster than earnings, pension credit has topped up their income and now, we are pleased to say, pensioners are no more likely to be poor than any other group in society.

With pension credit for most future pensioners being absorbed into the new, more generous state pension, together with the guarantee of the triple lock, that journey out of poverty continues. Pensioners’ incomes, especially for those with no occupational pension, will be stronger and more stable than ever before. It is good news and I am delighted. I congratulate the Government on it, I really do.

We know, in any case, that most pensioners are very careful and spend up to their income and no more. They cope and they avoid debt like the devil. However, the growing problem is that those pensioners dependent on the state system, who may in future have a more adequate state pension, are also less and less likely to go into retirement with some modest savings as a cushion against rainy days or as a resource to meet lumpy expenditure. Currently, 21% of pensioners—one in five—have no savings whatever; 37%, more than a third, have less than £3,000 in savings; and half have less than £8,000. If the Minister gives us any mean averages, they are frankly a waste of time, as they were in a previous debate about hours.

Pensioners face soaring quarterly energy bills—I imagine others noble Lords, like me, have been slightly shocked in the past week or two to receive an energy bill rather larger than anticipated. The roof may need substantial work, especially after the gales, and may

not be fully covered by insurance. Washing machines and boilers pack up. If they live in rural Norfolk, they may need to replace their old car with another, otherwise they are effectively housebound. They may have an outstanding mortgage and want to pay it off. What do the one in five who have no savings at all do when they are hit by a large utility bill? What do the more than one in three who have savings of less than £3,000 do when one of them dies and they face funeral bills?

We have, understandably, concentrated on building up pensioners’ incomes, and rightly so. However, we have largely ignored the issue of accessible pensioner savings for those of modest income. You can always turn capital into income—you just draw it down as you need it for that energy bill—but it is very hard to suddenly find £400 or more to pay the winter quarter energy bill from state pension income alone if you have no savings on which to draw. In other words, pensioners need savings, just as we all do, and too often they do not have any.

We recognised this when we did the deal with what was then Age Concern as we introduced pension credit in, I think, about 2002. The first £10,000 of savings would be disregarded for pension credit, although thereafter there was a high notional tariff rate. We recognised this need for savings when my noble friend Lord McKenzie made means-testing far more light-touch as pensioners became older. That is why, incidentally, I am seriously bothered about the new class 3A contributions, which encourage pensioners to use up capital to buy a year of S2P, taking an unwise gamble on their life expectancy, increasing their income by a bit but heavily reducing their capital. That is very unwise.

Above all, we recognised this when, back in 2005, we allowed pensioners who had deferred drawing their state pension to take that saved-up pension either as an income addition to their future pension—which is what most did—or as a lump sum to give them some savings. The Government propose to abolish the choice of taking that saved-up pension as a lump sum; it will be available to people only as an addition to the state pension. They are removing the choice of a savings sum from future pensioners. Currently, of the 1.2 million who defer their pensions, 63,000 take the lump sum, which was, on average, just under £14,000. In future, that option will be scrapped. Why? The Minister for Pensions, Steve Webb, is absolutely clear that he is doing it to “simplify the system”. It is not about costs at all, he says, just about simplicity. What is so difficult to understand about a lump sum of your two years or so deferred pension? It is complex, the Minister says, because DWP needs a 64-page leaflet to explain the choice. The Minister in your Lordships’ House, the noble Lord, Lord Freud, says the same.

As the Minister would expect, I have that 64-page leaflet. It is well written—well done to the DWP—simple to understand and straightforward. I have worked through it. I calculate that if, in the name of simplicity, you removed the choice of a lump sum and allowed only an increase in the pension, you would remove precisely 11 pages in total—I will give him the references if he wishes—so that the 64 pages would come down to 53. The rest of the pamphlet would remain unchanged

apart from occasionally deleting the words “or lump sum” from, for example: what happens when I die, if I get divorced or if I am widowed; can I combine them; what if I live abroad; what are the effects on my benefits or on my tax; where can I find out more; what organisations may help me; and so on. That is what the 53 pages are largely about. All that applies to any deferred state pension, whether it is taken as an increment or as a lump sum—the argument of simplicity does not wash at all. It is a complete myth, and if anybody worked through that pamphlet, they would see it for themselves. I am confident that the Minister has worked through that pamphlet and I am therefore confident that he will agree with my assertion that it removes only 11 pages out of 64 in the name of simplicity, thus denying choice to people who want to exercise that choice. Taking out that choice in the name of alleged simplicity is, frankly, laughable—it is absurd. I have never seen such a trivial justification. It takes 11 out of 64 pages and thereby denies the choice of a savings lump sum to 65,000 people. I presume the Minister thinks people can understand 53 pages but that 64 pages is just too much. Really? Because he thinks, without any evidence, that they cannot manage those extra 11 pages, he will take the decision out of their hands and make it himself. He knows better than pensioners what they should do with their money. He cannot trust people who have been working and scrimping for 50 years not to waste any savings—their money—that they may accrue.

Mind you, if you have a private occupational pension and get a 25% lump sum tax-free, that is fine. You can do what you want with it. If you simply defer your S2P element, your additional pension, for two years you can take that as a lump sum. The Minister will not tell you how to spend that either. However, on a state pension, he is taking away the possibility of a lump sum—your money—that you have saved for, because, frankly, he does not trust you with it and is calling it simplicity if he takes 11 pages out of a 64-page pamphlet.

Some people, after two years’ deferral, may want that £14,000 of their money rather than the alternative of £14 a week. I would. They would be better off taking the £14 per week instead of a lump sum only if they live, I calculate, a further 20 years until they are aged 87. Those without savings are also poorer and least likely even to reach 80, let alone 87. Who are we talking about? They may be husbands working longer until their younger wife also reaches state pension age. They may both work longer, and one takes the income and the other the lump sum. They may have a somewhat impaired life expectancy; perhaps one is a smoker and they want the lump sum up front just in case that person does not survive to 87. The unspent portion of the lump sum can be inherited by the surviving spouse and would help cushion her—but if taken as increased income it dies with him.

We rightly spend hours trying to encourage people of working age to work longer. We rightly spend hours trying to get them to save. We know we need to build a savings culture. In a low-paid job, perhaps the only way they may be able to build savings is to defer their state pensions for a year or two, work a bit longer and take it as a lump sum. That may subsequently save them needing to get loans at huge interest rates because

they have a lumpy bill, perhaps an energy bill, to meet. It allows them to make choices, which each one of us in this House takes for granted. Having just that extra margin in savings means that they can decide to help a grandchild, buy a washing machine that works, replace the carpet, celebrate a golden wedding anniversary, turn up the heating when it freezes or give a donation to their local church. They cannot do that out of income. They need savings. It is their choice, not ours. Pensioners, as they enter pension age, are moral adults and we should respect that and respect them. They have earned the right to that choice and we—and the Government—have absolutely no right at all to take that choice away. I beg to move.

Baroness Sherlock (Labour)

My Lords, although we gave this a fairly good airing in Committee, I confess that I do not yet feel that I properly understand the nature of the Government’s objections to the taking of lump sums. My noble friend Lady Hollis explained her case for this, and there is no doubt that we have a crisis of savings in this country. Too many people do not have a safety net for a rainy day, and British households generally do not have enough money in savings. That amount has been falling in recent years—unsurprisingly, given the pressures on the cost of living. The case made by my noble friend about why people might need access to a lump sum deserves an answer from the Minister. She described when and why the option was introduced and what people might use it for.

However, having gone carefully over the record and the correspondence since, I did not get answers to some of the questions which I put to the Minister in Committee. Those answers would help me because I would like to understand two things. First, are the Government confident that they have worked through who will be affected by this, what the impact will be and what the alternatives are? Secondly, can they explain clearly why they are doing it? On the first point—and I did ask this—we know that 75% of those who are deferring are women, but do we know why?

My noble friend suggested in Committee that those people are waiting until their partner retires to claim their pensions. Have the Government been able to confirm whether that is why they are deferring, or are they deferring because they are still working and have not saved enough to feel able to retire? What do we know about the wealth of those who are deferring their pensions? These questions matter because they would go to the points made by my noble friend Lady Hollis about whether people without savings are going to end up accessing other forms of credit, which we would not want them to do as they may be problematic.

Most of all, I would like to understand what the Government’s objection is. We have had a few arguments made: the argument of simplicity was made and has been pretty well dispatched, so I will not revisit it. Another argument raised was that significant numbers of people deferring and claiming a lump sum are living overseas. However, we know from the data given to us that more than three-quarters of those people are living in the UK, so that is probably not the issue. Is it the administrative burden? Perhaps the Minister could tell us whether it is that or simply the cost.

If it is the cost, I understand that. If the Government’s argument is that the costs are significant, the House, I am sure, will listen carefully. However, it would be helpful at this point if the Minister could simply come out and say whether he would like to do this but cannot afford it or whether the Government think for some reason that it is a bad idea, in which case my noble friend Lady Hollis has laid down a strong challenge which the Minister really should answer.

Lord Freud (Conservative)

My Lords, in designing the single-tier reforms our overriding aim has been to deliver a flat-rate pension above the basic level of the means test without increasing spending, and to do so in a way that recognises people’s contributions under the current system. This is not easy to do and it involves difficult trade-offs. Some elements of the transition necessarily generate costs in the early years, particularly the “better of” calculation, which means that people with low amounts of additional state pension, such as carers, receive a boost. There is also the fact that those with high amounts of additional state pension, which take them over the full amount of the single-tier pension, are able to keep the surplus as a protected payment. Nevertheless, we have been able to stay within 1% of projected expenditure until 2040, which is fair to current pensioners and to future taxpayers.

In answer to the blunt question of the noble Baroness, Lady Sherlock, removal of the lump sum option for those who defer their state pension has played a key role in flattening expenditure. The early-year savings that this delivers have been ploughed back into the single-tier design. We are, however, still keen to preserve some flexibility for single-tier pensioners who, by choice or accident, claim after they reach state pension age, so people will still be able to build up an increase to their state pension that is paid on top of their single-tier entitlement for the rest of their lives. As discussed in Grand Committee, there remains the option of backdating a claim for a single-tier pension. By backdating their claim to a state pension, someone who has delayed claiming for whatever reason—either unintentionally or as part of a planned retirement—will be able to get up to 12 months’ arrears when they make their claim for a pension. This would provide someone who has qualified for the maximum weekly amount of £144 with arrears of almost £7,500 at 2012-13 prices.

Baroness Hollis of Heigham (Labour)

Can the Minister help me with a technical point? With arrears, is the assumption that interest will be paid on the deferred money?

Lord Freud (Conservative)

What happens is that the amount is repegged to the year in which it is taken. If, for instance, someone’s delay in claiming exceeded a year, they would get an increment on top of the single-tier entitlement.

Baroness Hollis of Heigham (Labour)

I am sorry but I still do not understand. This is a very simple point. At the end of the year in which you have not drawn your pension, do you get the equivalent of a return on capital—in other words, an interest payment—over and beyond the direct addition of 12 months of state pension?

Lord Freud (Conservative)

No, you do not get interest on arrears, but let me take the example of someone who delays claiming the maximum amount for two years and wants to backdate their claim for the 12 months. If we take the £144 example, they would get an increment of around £7.50 to £8 a week, depending on the value of the uprating, which would be added to their weekly entitlement. It would also include the calculation of arrears due to them for the backdated period. That would boost the overall arrears payment to more than £8,000, so that is the mechanism through which the delay works.

On the question from the noble Baroness, Lady Sherlock, about why women in particular are deferring, one of the main reasons is that women have a lower state pension age than men, although of course the reasons will vary with individual circumstances. I am loath to go too deeply into the simplicity argument because we will have a row which will go on for ever. However, to conflate complexity with the number of extra pages in a particular pamphlet is, bluntly, a somewhat bizarre argument. The difficulty for individuals is in making the decision on what option is best for them in the longer term and what is best for their surviving spouse.

Baroness Hollis of Heigham (Labour)

Has the Minister actually read the pamphlet?

Lord Freud (Conservative)

I must confess that I have not counted up the pages or gone through it in detail. I suspect that I have gone through it but I cannot remember it and have not done the counting job on pages that clearly I should have. I knew that I should not have said this. However, I am not going to back down and I will stay with my “bizarre” comment.

Baroness Hollis of Heigham (Labour)

Is this evidence-based policy? The Minister has not read it but it is “bizarre”.

Lord Freud (Conservative)

My Lords, I am most grateful for having a superb staff, some of whom have not only read the document but written it, so I am confident in the statement that I have just made.

The removal of the lump sum is not because we do not trust people; in fact, it is quite the opposite. We believe that people can make savings decisions for themselves. If they can afford not to claim the state pension, they can choose to save it.

Let me go to the figures on pensioner capital. We do not recognise the figures quoted by the noble Baroness. The figures I can quote—which are not averages, which I know the noble Baroness would scorn—are that almost three-quarters of the pensioner population already have more than £5,000 in capital, and more than half of all pensioners have more than £12,500 in net wealth.

Baroness Hollis of Heigham (Labour)

The Minister challenges my figures. Is that households or individual pensioners?

Lord Freud (Conservative)

It is households.

Baroness Hollis of Heigham (Labour)

My point precisely.

Lord Freud (Conservative)

I am not sure why that was the point precisely, but those are the figures I have. The proposed amendment would allow for regulations to introduce a lump-sum payment into the new scheme. That would bring costs forward and would undermine the cost neutrality of the single-tier package, as well as the simplification.

Bringing costs forward may sound like a technical concern, but the timing of expenditure is vital. Without making offsetting savings elsewhere in the single-tier package, Governments in the early years of single tier would be forced to divert more spending towards the state pension system than under the current scheme, which means more government borrowing for future generations to shoulder, or less to spend on today’s priorities. We simply do not believe it is right to make this trade-off to enhance the personal financial management options for a relatively small group of people who do not need to draw the income from their state pension and are therefore able to exercise their option to defer.

We understand that a one-off payment can help people build up capital, and the backdating option can provide flexibility in this respect. However, we question whether there is a widespread problem of low capital for those in retirement. Introducing a lump sum would require us to make alternative savings from elsewhere in the single-tier package, most likely by reducing coverage. We simply cannot agree to that, and so I urge the noble Baroness to withdraw her amendment.

Baroness Hollis of Heigham (Labour)

My Lords, that was a very interesting reply. I only wish we were in Committee so we could show up more of the thinness of the Minister’s reply. For somebody who is so evidence-based—which is something I greatly respect about the Minister—he was dismissing it rather wildly out of hand.

The Minister pushed the argument that this is about cost and said that this removal played a key role in “containing expenditure”. That is very interesting. I had a discussion with his right honourable friend something like three weeks ago on precisely this point. He assured me most emphatically and vigorously—I am sure he would confirm the conversation, and there were witnesses—that this had nothing to do with cost but was only about simplicity. May I at least suggest that the Minister talks to his right honourable friend and agrees a common line on this? At the moment, one says it is all about cost and the other says it is nothing to do with cost but is all about simplicity. I suspect that the Minister in our House is probably correct about the cost argument, but that is not the position presented by the Minister responsible for pensions, who assured me emphatically to the contrary.

As to the point about simplicity, frankly, it is absurd. I checked my pages again. Pages 11 to 17 are a table showing the cost value of a lump sum compared with increments, and pages 26 to 29 are on taxing the lump sum. That makes 11 pages in total, and probably only three of those, on taxing the lump sum, would be regarded as any form of challenge beyond a reading age of seven and a quarter—so the Minister’s argument about simplicity is frankly absurd, patronising,

condescending, lacking evidence and without any factual basis whatever. Frankly, we expect rather better from the Minister.

As for pensioner savings, as I suspected, the difference between us is that my figures are based on individuals, and I stand by them, and his figures are based on households, which does not help the argument very much. He seems to think that 64,000 people denied a lump sum is such a small number that we do not need to bother about them. It is three times the number of service spouses, if I remember correctly, that he is going to help through the military covenant, and no one said they were too small a number to bother about—yet the figure for a lump sum possibility which is three times larger is too trivial to be worth troubling ourselves with.

Frankly, I do not think the Minister believes a word of his argument. I think he does believe his argument about cost, but I do not think he believes anything else about it. He knows and understands that pensioners need savings. He knows that this may be a way for those who take this lump sum to exercise that choice. He knows that it is not difficult to understand. It could not be simpler. Do you want to take this two years’ worth of pension as a lump sum or do you want to add it on? If you are taking away the increment, that would be complicated to explain. A lump sum is the easier and simpler of the two options, and that is the one the Minister is taking away, to the pain of the individual who I calculate will reach their cross-over point—I asked the Minister for this figure, but it has never come to me—at about 87: I stand to be corrected if the Minister thinks I am wrong.

We are left with backdating—fine. All I can hope, and I am sure others do as well, is that we will keep up the pressure on Ministers to ensure that people are aware that they can take their pension lump sum in arrears, as a form of saving, after 12 months and get £7,500 or £8,000 for that sum, which will still keep them below any risk that other benefits, if they are necessary, including housing benefit, will be lost.

I am disappointed by the Minister’s reply, and I think that the Minister is disappointed by the Minister’s reply. He knows that it does not stand up to a scrap of scrutiny—not one scrap—but there is nothing much we are going to do about it at this time of night, so I beg leave to withdraw the amendment.

Amendment 6 withdrawn.

Consideration on Report adjourned until not before 8.47 pm.

Lord Freud (Conservative)

My Lords, I am aware that the noble Lord, Lord McKenzie, cannot be present today for personal reasons. Given the circumstances, I should be happy to have further discussions with him about his Amendment 7.

Baroness Sherlock (Labour)

My Lords, I know that my noble friend would wish to bring back his amendment at Third Reading. Would that be okay with the Minister?

Lord Freud (Conservative)

Yes, that would be all right.

Amendment 7 not moved.

Schedule 12: State pension: amendments

Amendments 8 to 10

Moved by Lord Freud

8: Schedule 12, page 51, line 37, at end insert—

“In section 1 (outline of contributory system), in subsection (1)(a), after “this Act” insert “or any other Act”.

In section 13 (Class 3 contributions), in subsection (2), omit “contribution”.

After section 19A insert—

“19B Extended meaning of “benefit” etc in Part 1

In this Part references to “benefit” or “contributory benefit” include benefit under Part 1 of the Pensions Act 2014.””

9: Schedule 12, page 52, line 17, at end insert—

“(5ZB) Regulations under subsection (5ZA) must provide for crediting a person with such contributions as may be specified in respect of periods on or after 6 April 1975 during which the person was—

(a) a spouse or civil partner of a member of Her Majesty’s forces,

(b) accompanying the member on an assignment outside the United Kingdom, and

(c) not of a description specified in the regulations.”

10: Schedule 12, page 52, line 17, at end insert—

“In section 122(1) (interpretation), in the definition of “benefit”, after paragraph (c) insert—

“(For the meaning of “benefit” in Part 1, see also section 19B)”.”

Amendments 8 to 10 agreed.

Clause 24: Abolition of contracting-out for salary related schemes etc

Amendment 11

Moved by Lord Whitty

11: Clause 24, page 11, line 38, at end insert—

“( ) The power conferred by subsection (2) on employers to amend occupational pension schemes does not override the powers and duties of Trustees of such schemes nor any duty to consult members of such schemes and their representatives in accordance with the terms of such schemes.”

Lord Whitty (Labour)

My Lords, with Clause 24 and Schedule 14 we deal with the impact of the ending of contracting out on existing occupational, or work-based, pension schemes. The impact is pretty severe, being up to 5% of the income of those schemes. The Government have provided some measures in Schedule 14 and Clause 24 that allow employers effectively either to increase the contributions of employees but not of employers or to cut back on the benefits of those schemes. I do not approve of that way of dealing with the situation for either the public or the private sectors. Of course, ending contracting out impacts on both sectors. Although Clause 24 is primarily about the private sector, there are a couple of related questions on the public sector that I should like to put to the Minister.

I declare an interest as a vice-president of the Local Government Association and as a long-term member of the GMB. I am therefore particularly concerned about the local government scheme but other public sector schemes are also affected. In Committee the Minister indicated that he was prepared to have discussions with the LGA—and, presumably, parallel discussions with other public sector employers—to consider how the loss to its funds could be made up.

I understand that a meeting took place on 14 January and that the noble Lord, Lord German, was present at that meeting and may be able to elucidate. However, from the note of the meeting that I have seen, I am not

clear as to the Government’s position on follow-up to that meeting in relation to the Local Government Pension Scheme. Of course, the Local Government Pension Scheme affects a large number of employers, not only local authorities but others in the public, private and third sectors. It is therefore important that some understanding of the stability of those schemes in future public expenditure allocations is established. It would be useful to hear of any progress on that or parallel fronts, so can the Minister update us on progress?

As to some of the schemes which are now in the private sector, Amendment 14 goes some way to meeting the concerns expressed on behalf of the post-privatisation schemes where guarantees were given that there would not be any diminution in the benefits from such schemes at the point of privatisation. So anyone who was in a scheme before that point should have been covered. I welcome that. However, I have a concern about the definition of “protected person”. The amendment refers to it being defined in regulations, whereas the schemes to which the Government have referred in their statements on electricity, railways, nuclear decommissioning and coal do not cover all the people who were given guarantees post-privatisation. For example, the guarantees for gas workers were written into the deeds of the scheme but were nevertheless promises backed by the Government. I should therefore like to know how far into the area of protected persons the regulations are likely to go. If the noble Lord wishes to write to me on that front I would be grateful but, in any case, out of equity, it ought to be addressed in the same way for every group of workers affected during that period of major privatisation of the utilities and other nationalised industries.

Of course, the Government have provided in Clause 24 and Schedule 14 a way out for others who are in private sector schemes. The way out is hugely detrimental to the members of those schemes in that it gives the right of override to employers—not to the scheme—to alter the terms of that scheme in order to make up the effects of the ending of contracting out, which can be up to a 5% deficit in such schemes. As the Bill stands, that ability to override is without reference to trustees, without invoking any consultation with members and without negotiations with trade unions or other worker representatives. Amendment 11 seeks to ensure that the rights of trustees are protected and that their legal responsibilities are recognised; that the trustees will be involved in any alteration of the scheme; and that consultation will be conducted in accordance with the terms of the scheme. Amendment 13, tabled by my noble friend Lady Turner, goes further and requires a ballot of members of such schemes. Unless we do that, we are seriously undermining the whole system of trusteeship of private sector occupational schemes.

I hope that the Minister will be able to tell me that Amendment 12 is unnecessary because it is in the existing law. I hope that is the case but the terms of Clause 24 and Schedule 14 which allow for override and alteration are extremely wide. It should have been the law and it was generally accepted that it was the law post the Maxwell scandal and the reforms that led to the requirement that schemes could not at any point retrospectively change the accrued benefit of members

up to that point. In other words, the scheme could be altered subsequently but anything accrued up to the point of change could not be retrospectively downgraded. Amendment 12 seeks to ensure clearly that this is the case.

We need clarity from the Government on this and we need their vision for the future of occupational work-based schemes because there is a contradiction in the Government’s position. On the one hand, we are engaged in a system of auto-enrolment to increase the coverage for workers who hitherto have been outside occupational schemes, and in principle we welcome all that. On the other hand, the effects of the Bill, without mitigation of the kind I am suggesting in Amendments 11 and 12, will undermine and even destroy the viability of many existing schemes. It is not just the final salary schemes that we are talking about here, or career average schemes or simply defined benefit schemes. It will also apply to or have implications for all occupational pension schemes, partly because of the financial effect but also because the viability of pension schemes depends not only on the funding arrangements and the rigour with which those schemes are managed, but on the mutuality between the members, the employers and the funders under which those schemes are set up. That is reflected in the trustee arrangements; expectations are based on that mutuality continuing and on that trustee protection. If that goes, then members’ and potential members’ trust in such schemes goes too. We need to hear clearly from the Government what their intentions are for this sector.

If trust goes, then the level of opt-out from such schemes will increase. Pension schemes will be seen as non-viable. Some pension schemes will fail and the workers and the employers who have hitherto seen their pension contributions as part of deferred pay may no longer regard them in that light. Therefore, pressure might grow for them to be paid immediately. Pension schemes are the most effective form of savings but they will not appear that way if trust in such schemes disappears. That is bad for future pensioners but it is also bad for the economy if that element of relatively automatic saving is undermined. To maintain the trust, the role of trustees is vital. I would therefore like the Government to accept Amendment 11 and to indicate that the role of trustees, and therefore the trust in such schemes, would be maintained. That is not to say that alterations could not be made, but they would be made through the way in which the role of the trustees and the consultation is laid down in such schemes.

At a minimum, I hope that the Government can accept Amendment 11, confirm my understanding that Amendment 12 is indeed the law as it stands and clarify the situation of protected persons in the post-privatisation schemes. I would also like them at least to consider accepting the amendment tabled by my noble friend Lady Turner, which would delete Schedule 14 entirely, because the idea behind this whole way of overriding long-standing schemes is pernicious. Amendment 11 gives a way of doing it in effect, but doing it by consent, which is far preferable and will preserve a very significant part of the remuneration package and savings structure of the country. I beg to move.

Baroness Turner of Camden (Labour)

My Lords, in this section of the Bill employers are given a new power to change the provisions of a scheme in order to cover the NI costs to which they will be subjected. They may apparently do so without having to seek the agreement of staff or their unions. As my noble friend has pointed out, this is an overriding power to which a number of us objected at earlier stages when discussing the Bill. Schedule 11 sets out the provisions in some detail.

At Second Reading I referred to the development of what we now call defined benefit schemes, and what used to be called final salary schemes, as a result of which generations of pensioners have enjoyed excellent retirement provision. There was a move some years ago to change such schemes to money purchase schemes or schemes with less generous protection. Where the workforce was strong enough, probably with active union involvement, such schemes have been maintained. There is now, as a result of this Bill, concern among those who have not yet reached retirement age that these schemes will not continue and that employers will utilise the provisions in Schedule 11 to undermine or change them. Hence my amendment, which stipulates that an employer may not change these benefits without the agreement of the current scheme members, which under my amendment could be ascertained through a poll. I hope that the Government will agree that it is reasonable for the members of the scheme to have the final say. If an employer wants to change the existing arrangements, it must be by negotiation with the staff and their representatives and by agreement. Again, I hope the Government will agree that that is reasonable. If they do not, I would like to oppose the whole clause and the schedule.

I want to make another point about so-called protected persons. This was raised during earlier discussions and referred to again by my noble friend today. The Government have agreed in principle that individuals who were members of schemes when their employing companies were being denationalised would retain their pension provision. I believe the assurance is that where this protection has been agreed by statute, it will continue. I welcome that, and would like to see an endorsement of the point by the Minister. There are others who believe that they are covered not by statute but because their own private scheme gives them cover. Because of a change of ownership that might happen, they are concerned about their position in the future. Their position is not protected by statute, only by their own scheme. These people have concerns about what might happen to their DB scheme. My amendment would provide some cover because of the necessity to get the agreement of scheme members to any changes to benefit.

I wait with interest to hear what the Minister has to say to this, and in particular what he will say about his own Amendment 14, which looks like a tentative step in our direction. I hope that it is more than a tentative step and that he is undertaking to do something of the kind that we have been campaigning for and would like to see in the Bill before it leaves this House. I support the amendments already spoken to.

Lord Browne of Ladyton (Labour)

My Lords, it is a pleasure to follow my noble friends Lady Turner and Lord Whitty, who have robustly set out a fundamental challenge to Clause 24 and Schedule 13, which I think the Minister is required to engage with. Would the noble Lord and the Pensions Minister argue that the loss of the rebate, without some consequential provisions, would lead to the closure of defined benefit schemes? In short, my noble friends argue that this is where it will lead, even with the override which is designed to prevent their loss. There is a fundamental difference which deserves to be addressed in the way specifically asked for by my noble friend Lord Whitty. I am sure that the Minister will be conscious of that.

On the issue of protected persons, I welcome the Government’s concession, set out in Amendment 14, confirming that they will honour the specific undertaking given to the members of these schemes to encourage them to accept privatisation of the industries for which they worked. That is exactly why this undertaking was given to them. It has been promised for some time. Belated it may be in its delivery, but it is none the less welcome and it will be a relief to the 60,000 or more members of those identifiable schemes who have been awaiting this decision.

My noble friend Lord Whitty raised an interesting question about whether this concession can be made to apply in some form to gas workers who have a similar undertaking, but which was enshrined in a different way. I would be interested in what the Minister says about that.

Were my noble friend Lord Whitty’s Amendment 11 enacted it would ensure that:

“The power conferred … on employers to amend occupational pension schemes does not override the powers and duties of Trustees of such schemes nor any duty to consult members of such schemes and their representatives”.

To the extent that this amendment requires consultation with trustees, we support it. We had an extensive debate on these issues in Grand Committee and I made clear then that our position is one of broad agreement with the change to a single-tier pension and the aim of introducing simplicity into the state pension system. We also accepted that this required an end to contracting out. However, we agreed with the arguments put forward in Committee by my noble friend Lady Drake that statutory overrides are strong measures and should be used with care in all cases, at the very least requiring an employer to consult pension trustees before exercising the power to amend a pension scheme.

It would be to the benefit of understanding the Government’s position if the Minister would make clear in his response why the Government had set their face against consultation with trustees, especially when it is preserved in the statutory requirement to consult scheme members. It surely cannot be the case that the different approach to these forms of consultation is that consultation with trustees would be meaningful, but that consultation with individual members would be anything but—indeed it would be pointless. Like my noble friend Lord Whitty, I hope that the Minister’s response to Amendment 12 will be that it is unnecessary. It is my view that this is an expression of the current state of the law.

Finally, my noble friend raised an interesting point about public sector pensions, from his knowledge of the understandings that appear to have been implied by the meeting with the LGA. We would all be interested to know when further follow-up can be expected.

Lord Freud (Conservative)

My Lords, under the current system it is possible for defined benefit schemes to contract out of the additional state pension, giving up entitlement for additional state pension in return for a broadly similar occupational pension and payment of a lower national insurance rate for both employer and employee. When single tier is introduced, there will no longer be an additional state pension for defined benefit schemes to contract out of. Employers with such schemes will therefore no longer receive a national insurance rebate in respect of contracted-out members.

Employers will need to find ways to recoup the costs that the loss of the rebate brings. Unless they are able to do that, many employers will be forced to close their schemes. Clearly, members are not served by their pension schemes closing and the Government are committed to supporting the continuation of defined benefit pension provision. To that end, we are providing a statutory override to allow private sector employers to make limited changes to their schemes to adjust for the additional cost due to the end of contracting out. This is part of our wider state pension reforms. The majority of contracted-out workers in the private sector who reach state pension age in the first two decades of single tier will get enough extra state pension to offset the increase in national insurance they will pay over the rest of their working lives and any potential adjustments to their occupational pension schemes.

Noble Lords have made clear their concerns that the override is not abused by employers and that trustees and members are properly consulted about any changes. I fully recognise those concerns. The override allows for limited changes to future accruals and/or future contributions where the scheme rules would otherwise prevent that. I make it absolutely clear that the override does not permit the employer to ignore other rules about how the scheme operates. For example, it does not mean that an employer can avoid notifying trustees or members of a change, or refuse to carry out a consultation, if scheme rules would require this. Indeed, existing legislation requires that members are consulted on any significant rule changes before they are made. In response to the query from the noble Lord, Lord Whitty, that will remain the case. In addition, we have every reason to believe that employers will want to engage with trustees about how best to respond to the end of contracting out and believe it is in their best interest to do so.

Schedule 14 provides important safeguards, such as limits on the use of the override to prevent an employer from making changes beyond those necessary to recoup their increase in national insurance contributions, the need for an actuary to certify the changes and protection for members’ accrued rights. We will put further safeguards in regulations—for example, to ensure that the employer cannot create their own assumptions for the purposes of the calculation but must draw on existing assumptions used by the scheme.

Amendment 11 concerns protection for trustee powers and duties. As I have said, the override does not prevent the scheme operating normally. The only powers or duties that the override applies to—and therefore that the amendment would protect—are those that require trustee consent to changes or provide that only trustees can change scheme rules. Where these powers stay in place, they would make the override unusable, which in turn could encourage employers to close their scheme. Amendment 11 also seeks to ensure that the statutory override does not trump any duty to consult scheme members and their representatives. Such an amendment is unnecessary as scheme rules and existing legislation requiring member and representative consultation are not affected by the override.

The Government recognise that a trustee’s fiduciary duty to the scheme’s members may put them in a difficult position if they are required to agree scheme changes that, at face value, are detrimental to the member. However, the statutory override does not prevent the employer from engaging with the trustees on any scheme changes they are considering. It is in the employer’s interest to engage with trustees on proposed changes. Trustees are responsible for administering the pension scheme. All schemes need lead time before any changes can take place, to allow for IT systems to be updated and changes to the title deed to be made.

Part of Amendment 12 seeks to protect current members’ accrued rights. The Government absolutely agree that any accrued rights should be protected and preserved, and I reassure the noble Lord, Lord Whitty, and other noble Lords that the Bill already provides such protection by way of paragraph 3 of Schedule 14. This refers to the protection of “subsisting rights”—the term used in pension legislation—for both scheme members and their survivors.

Amendment 12 would also remove the stipulation that changes made in respect of future members have to correspond to changes made in respect of current members. It is important to remember that the override will enable employers to offset the additional cost of national insurance that arises from April 2016. The amendment would broaden the override. An employer could set different contribution rates or different rates of accrual for current and future members. I do not believe that that would be right. The increased national insurance costs to the employer from 2016 will be the same for both groups of members, and the Bill as drafted ensures that the override reflects that.

Where an employer chooses to use a statutory override to reduce future benefits rather than increase contributions then Amendment 13, tabled by the noble Baroness, Lady Turner, would require present members of a pension scheme to agree to the proposed reductions. This would place an additional burden on the employer, as it goes further than the existing requirements to consult. It would also mean that employers would be more likely to choose to make changes to contributions simply to avoid the administrative expense and burden of conducting a poll. It therefore removes much of the flexibility for the employer to make changes to future

benefits or contributions, or a combination of these two. Instead, they would be faced with increasing contributions or closing the scheme.

Amendment 15 would simply remove Schedule 14 from the Bill. I have already explained that Schedule 14 is vital. It sets the parameters for the override and contains many safeguards for members.

I turn now to Amendment 14, tabled in my name. This relates to the long-awaited response—long-awaited by the noble Lord, Lord Browne, if no one else—to the protected persons consultation. It provides that protected persons are excluded from the scope of the statutory override. Noble Lords will be aware of a small group of approximately 60,000 individuals employed on the railways, including by Transport for London, and in the electricity, coal, nuclear waste and decommissioning industries who were given guarantees at the time of privatisation. Legislation passed at that time limits employers and trustees in their ability to change scheme rules.

The Government consulted on whether employers should be permitted to use the statutory override in respect of these workers and published the outcome earlier this month. This is a finely balanced issue where the arguments are highly polarised. We received many responses with strong views expressed on both sides and from many different and conflicting interests. On one side, we were strongly urged to honour the promises made to this small group of individuals at the time of privatisation. On the other, employers and their representatives argued that it is important for all scheme members to be treated the same way when contracting out ends and said that, if protected persons are excluded, they would seek other ways to offset the loss of the national insurance rebate.

The Government have decided to honour the promises made at the time of privatisation, which in many cases have been subsequently reaffirmed by Ministers. Due to the interest expressed in the outcome of this consultation, my Amendment 14 seeks to make explicit the exclusion of protected persons from the scope of the statutory override. Regulations will specify who is considered a protected person in relation to the affected schemes. We intend to set this out to capture those persons who we described in our consultation response. In that response, we set out that we are aware that relevant legislation covers protected persons in the electricity, nuclear waste and decommissioning, coal and rail industries, including Transport for London. The gas workers, who were mentioned by the noble Lord, Lord Whitty, are not protected by statute. The matter of the gas workers was consulted on and the current intention is to exclude people protected under legislation.

Finally, there have been discussions between the LGA and others, and there was a meeting with the DWP and HM Treasury as well as the DCLG, and they have agreed to meet further with the LGA to ensure that options are considered in an informed way as part of the next spending review. I understand that other sectors, such as the higher education sector, are likely to be party to these discussions.

Lord German (Liberal Democrat)

Will my noble friend allow me a moment’s intervention? I was present at that meeting, and I found it very interesting to have a representative of HMRC there. One of the principal conclusions I drew from that meeting was that there was an agreement between the LGA and HMRC that they would examine up front any arrangement for the distribution of additional funds from HMRC to local government pension funds, and would get the process sorted out in advance so that if money became available the method of distribution would be quick and would help them in their procedure. Can my noble friend confirm my understanding that HMRC is onside with this?

Lord Freud (Conservative)

My noble friend is probably way ahead of everyone in this Chamber at this moment on this matter, but I think I can simply answer yes to his understanding. As he says, whereas final decisions tend to get taken at a relatively late moment, if the processes are well organised, that matters less and they can be effectively activated.

The ending of contracting out is an inevitable consequence of the state pension reforms. We want to manage this as smoothly as possible and to minimise impacts on employers, schemes and individuals. I have set out why the override is necessary and why the amendments tabled by the noble Baroness and the noble Lord would make the override unworkable. Amendment 11 would in many cases allow trustees to block changes to the scheme and would increase the risk that employers would simply close their schemes. That is why I urge the noble Lord to withdraw his amendment.

Lord Whitty (Labour)

My Lords, I thank the Minister for that. There is quite a lot in there which has cheered me up slightly—not everything, but bits of it. I am grateful for this update on the LGA position. We will watch this space. I am interested to see that there are other sectors that could be involved in that. I welcome the Minister’s statement in relation to the consultation of members of the scheme. I think I am quoting him correctly that the override does not affect the duty to consult, that the Government support the continuation of DB schemes and that the rules of such schemes on consultation are not affected by the override.

That deals with the consultation with members of the scheme, but it does not effectively deal with the trustee position, and the role of the trustees is very important in the future of the schemes and in future faith in them. The Minister said that trustees are bound to consult; yes, they are possibly bound to consult. The override clearly applies in his mind, and I presume the intention of the override is that in those schemes that require trustee consent, the employer, using Clause 24 and Schedule 14 can override the need for that consent. That seems a pretty fundamental alternation in the role of trustees. I hope that, even at this late stage, the Government would reconsider that position.

I am grateful for the Minister’s view on accrued rights and the fact that Amendment 12 is not, therefore, needed. I am less grateful for his indication that “protected workers” will not apply to those who are protected on

the word of the Government of the day but not actually embedded in statute. This applies principally to the gas workers and I suspect I will be in correspondence with him about that.

The central point of this group of amendments is that, in this clause, the Government have, effectively, overridden the governance structure of work-based occupational schemes by attacking the very fundamentals of trusteeship. That is a mistake. Over the years, many changes have been made at the behest of employers and with the agreement of trustees. Some of these were detrimental to future members because of the financial position of the scheme or legislative changes. Trustees are unlikely to be unable to recognise the need for such changes, but to override and delete trustee consent is a very serious step which the Government should be much more hesitant about taking. However, for the moment, I beg leave to withdraw the amendment and thank the Minister for some of his other remarks.

Amendment 11 withdrawn.

Amendments 12 and 13 not moved.

Amendment 14

Moved by Lord Freud

14: Clause 24, page 11, line 42, leave out subsection (4) and insert—

“(4) The power may not be used—

(a) to make amendments that apply to a member who is a protected person in relation to a scheme, or

(b) to amend a public service pension scheme or a scheme of a description specified in regulations under this paragraph.

(5) Regulations must define what is meant by a protected person in relation to a scheme for the purposes of subsection (4)(a).”

Amendment 14 agreed.

Schedule 14: Power to amend schemes to reflect abolition of contracting-out

Amendment 15 not moved.

Clause 27: Periodic review of rules about pensionable age

Amendment 16

Moved by Baroness Turner of Camden

16: Clause 27, page 13, line 29, leave out from “to” to “and” in line 30 and insert “the type of work undertaken and the degree to which this may impact on health and life expectancy”

Baroness Turner of Camden (Labour)

My Lords, this is a short amendment dealing with the section of the Bill that allows for the periodic review of rules about pensionable age. When I read it, I was concerned that there was nothing at all about the type of work people undertook before they retired. At Second Reading, I said that there were many people who were quite happy to go on working past normal retirement age but it depends on the kind of job you do, whether you are well paid, whether your job has authority, whether

you enjoy your job and so on. However, there are many people who do work that is very necessary if the rest of us are to lead reasonably comfortable lives, such as people who work in construction and other industries where there is strenuous activity and, sometimes, danger. It is not a good idea to have elderly people in this kind of work.

It is too late in the day to make a long statement about this, but if there is to be a review of retirement ages it must be understood that people do very different types of work and it is not a good idea to think that one size fits all. I hope the Government will realise that in a periodic review of retirement ages it is sensible also to take on board the kind of work being looked at and the sort of people who are expected to do it. If they do not, it will not be very popular and may lead to problems in the future. You do not want future problems in a pensions Bill, so I suggest the Government think very seriously about this. I quite like Amendment 17, which is also concerned with a review of how retirement age is judged and brings a range of representatives of parties, including trade unions, into consultation, which is also very sensible. In the mean time, I beg to move.

Baroness Sherlock (Labour)

My Lords, in speaking to Amendment 16, I shall also speak to Amendment 17 in my name and that of my noble friend Lord Browne. We on these Benches agree with the principle of raising the state pension age to reflect longevity. We accept the need for periodic reviews of the state pension age. Where we differ from the Government is on how best to do that.

Fixing the state pension age is never easy. There is always an issue of fairness at stake. Having a careful, evidence-based review before taking any future decisions on changes to the state pension age is a crucial element of ensuring fairness between generations. However, sometimes fairness requires a consideration of difference, particularly differences in longevity and health. The Government are setting considerable store by actuarial information on average life expectancy. However, while average life expectancy tells us something—mostly quite a lot about medical advances and their ability keep us alive for longer—it does not tell us very much about our health in retirement or differential mortality rates.

We heard a great deal of evidence in Committee to inform our debate, and I certainly will not rehearse it all here, noble Lords will be relieved to hear. However, maybe the headlines are worth briefly restating. People are living longer, but the proportion of years in full health is not keeping track at the same rate. We have significant inequalities in health within the UK, and significant variations in mortality as a result. There are clear socioeconomic differences. There is a class divide, as managerial and professional classes live longer than manual workers by 3.8 years for women and 3.1 years for men. There is a clear geographical divide.

There is then the effect of this differential life expectancy on state retirement incomes, with the irony that those living the shortest lives post-retirement—the

poorest and least skilled workers—will receive less in state pension than their better-off counterparts, but they may well have contributed for longer as a result of having spent less time in education.

If we want people to save for retirement, they need to trust the Government, to trust Parliament and to believe that their pensions are safe in our hands. The public need to know that they will not be at the mercy of political expediency, and that they will be protected from any adjustments that need to be made by ensuring that they are not made too quickly. Rather than simply being a matter for the Secretary of State, as the Bill proposes, we need a genuinely independent panel which has the kind of cross-party and independent representation that will reassure the public and give confidence to parliamentarians from across the spectrum. Our amendment proposes simply that the review body should include representatives of the opposition parties and of the Cross Benches of this House to ensure that Parliament as a whole is at the heart of this process. It would also include representatives of trade unions, who are themselves the representatives of those who are spending their ever-longer working lives saving for retirement. This broader representation will give people confidence that a wide range of views will be heard. I urge the Minister to accept it.

Lord Freud (Conservative)

My Lords, as your Lordships know, the purpose of the review of state pension age is to inform the Government. The reports from the Government Actuary and the independently led review, which will feed into the review, should collect and analyse the latest data, and give the Government of the day the information they need to make what will always be a difficult and contentious decision.

We are all keen that the Secretary of State receives a report that is impartial. Because we are requiring that all reports compiled as part of the review are published and all future changes to state pension age continue to go through primary legislation, any proposal based on a report that is not impartial, credible and comprehensive will quickly fall apart when scrutinised by stakeholders and both Houses of Parliament.

Turning first to the substance of the amendment tabled by the noble Baroness, Lady Sherlock, and the noble Lord, Lord Browne, if one thing is apparent it is that there is no clear consensus on who should sit on the review, what they should look at, or how they should collect the necessary evidence. We have been clear in Grand Committee and in the other place that this Government’s vision of the review is one similar to the independent review of public service pensions. That review was run by the noble Lord, Lord Hutton, a member of the opposition Benches and an expert in his field. It was transparent, comprehensive, independent and established a consensus.

Noble Lords will also be aware that the Pensions Commission, set up by the previous Government, had three commissioners from the areas of business, trade unionism and academia: not a single politician or Cross-Bencher. That commission gained support through comprehensive and open debate about the issues and trade-offs, rather than being based on the inherent characteristics of the commissioners’ backgrounds.

In short, the amendment tabled by the noble Baroness, Lady Sherlock, and the noble Lord, Lord Browne, would preclude these two successful models. It would result in a body of at least six individuals from stakeholder groups, the other place and this House. It would not necessarily have the expertise to review the relevant data and would effectively create a mini parliamentary process before the parliamentary process proper. We do not think that is the right way to run a review designed to inform the Government. In the Bill as currently drafted there is nothing to prevent a future Government running the review in whatever way they think best. That is a key point underpinning our approach to the review—getting future Governments to take active ownership of and responsibility for all aspects of the review, instead of just going through the motions.

Turning to the factors to be considered as part of any review, I must note that in response to the recommendation made by the noble Baronesses, Lady Turner and Lady Sherlock, we do not have the data regarding the relationship between specific occupations or types of work and life expectancy and healthy life expectancy. Beginning to collect such data would be both burdensome and, I imagine, for some professions simply impossible. More generally, we do not think it is necessary to specify any factors to be considered in legislation. We have already consulted stakeholders on what factors they think are important, and stated the factors we expect to be considered in the White Paper. The Opposition are worried that by not specifying the factors in legislation, future reviews simply will not consider important variables. However, what kind of support would such a review generate?

We want to encourage all interested parties to feed in their thoughts and contributions to better involve them. Specifying factors in the Bill could send out the message that we have already thought of everything important, and that future Governments do not need to consider additional factors as they are not set out in primary legislation. Such an approach could lead to a tick-box mentality, with Governments simply going through the motions instead of taking a proper, considered approach to each review. My point is illustrated by the fact that another factor has been added to the Opposition’s amendment since its predecessor was tabled only a month or so ago. Other noble Lords have also previously suggested additional factors, including life expectancy of the lowest income decile, prevalence of smoking and quality of diet. This demonstrates that the determination of relevant factors should take place after a thorough and extensive consideration and on an iterative basis for each review.

I turn now to the review’s remit. We believe that the Government should maintain control of this to keep it focused on the task at hand. There is nothing in the Bill to prevent the Secretary of State of the day updating the remit of the review, and we—or, more importantly, stakeholders—would fully expect him or her to do just this if new and compelling factors were identified during the course of the review.

The amendment of the noble Baroness, Lady Sherlock, also requires evidence to be gathered in public sessions. Although there is nothing in the Bill to prevent some

evidence being taken orally—rather as Select Committees do—noble Lords will be aware that the nature of the analysis around state pension age, such as the myriad tables, charts and graphs, does not lend itself well to public sessions. Underpinning our approach is the idea that each Government will fully own and be responsible for the review. Setting out membership and factors to be considered restricts rather than increases that responsibility. It would instead limit the scope of reviews and reduce engagement by stakeholders. I therefore urge the noble Baroness to withdraw her amendment.

Baroness Turner of Camden (Labour)

I thank the Minister for his response. It does not surprise me, but, on the other hand, I still think that the type of work that people do is very important. There are, of course, already industries in this country in which there are different ages of retirement for different types of work. It is not unusual for that to happen; indeed, it is quite a common practice, if an industry is particularly stressful or difficult, for there to be a lower retirement age for that kind of work. It is not an unusual state of affairs but one that is highly regarded where it applies—and people accept it. They think, “Oh well, that sort of work is very tough, but at least you go a bit early for it. You don’t have to stay and work there—after a certain time you can go”.

My husband, who was a pilot in the war, tried to stay in the Air Force because they were recruiting people to fly civil aircraft when the war ended. He tried to get into civil aircraft because he was a pilot, with decorations, but he was disappointed to find that he could not do so. He wanted to get into the civil air force because they had an early retirement age; he thought that he could retire at 50 and start becoming a full-time artist, which is what he had always wanted to do. But he did not manage to do that. I give that as an example, because the age of retirement was different than for general people. So it is not an unusual situation.

I still think that it is quite sensible to have a provision under which it is possible for a review to take seriously into account the type of work that is involved. However, I note what the Minister has said this evening and I shall study it with interest. In the mean time, I beg leave to withdraw the amendment.

Amendment 16 withdrawn.

Amendment 17 not moved.

Clause 30: Bereavement support payment

Amendments 18 to 21 not moved.

Amendment 22

Moved by Baroness Hollis of Heigham

22: After Clause 30, insert the following new Clause—

“Assessed income period: indefinite period

Notwithstanding sections 28 and 29 above, any recipient of pension credit may from the age of 75 years have his or her assessed income period set for an indefinite period.”

Baroness Hollis of Heigham (Labour)

My Lords, pensioners usually have stable incomes, especially compared to those who work, and they do not fluctuate by much. At the moment, existing pensioners on pension credit have their income and thus their eligibility assessed every five years at 65, 70 and 75. Thereafter, no further means-testing is required, although people need to report the death of a spouse or when they move into residential care. The Government are proposing to replace this light-touch system with annual means-testing every year until death, with the modest exemption of those currently already over 75, for whom means-testing has been suspended. All future pensioners will have annual means-testing until they die, which means that they will means-test, for example, a frail, 90 year-old widow.

In Committee, we argued that we would retain the current system of five-year assessments of income for pension credit eligibility and the suspension of means-testing after 75, both of which the Minister wishes to replace with annual means-testing. The Minister was not sympathetic; he tried to suggest to my noble friend Lady Sherlock that the new system would be simpler, whereas on any ordinary understanding of the word it is becoming more complicated. Eventually, he fell back on the necessity of making these savings—all £65 million or so extracted from some of the poorest people in the country.

This amendment is modest and targeted. It would permit the Government to means-test pensioners annually, as they propose to do, until the recipient is aged 75, and from then on as now those means tests would be suspended. Why this proposal? My concerns are threefold. First, the proposed changes will discourage pensioners from claiming pension credit. Secondly, it is profoundly unfair. Thirdly, it is not worth the relatively small savings that may follow.

On the first point of discouraging pensioners from claiming, we know that pensioners do badly out of means-testing, perhaps through ignorance. Many do not know what they are entitled to, especially if the husband who has always handled the finances of the family dies and his widow is not aware of what she may be entitled to.

Then there is the stigma. Even those who are aware of pension credit may deem themselves ineligible, as DWP’s own research shows, because years before they were refused another, and different, benefit. A third of pensioners now do not claim pension credit who should. They miss out on very large sums indeed—a mean average of £34 per week. Similarly, some 40% of pensioners do not claim what used to be called council tax benefit—which now has been very foolishly localised—although they should. Others do not claim attendance allowance, although they could. My late mother was entitled to attendance allowance for my late father, but I could not persuade her to claim it, because of the stigma of means-testing. It was in part because means-testing was not an effective way of helping many pensioners that I was delighted when it was built out of the new state pension, and I remain delighted.

However, given that only 80% of women will be retiring on a full state pension in their own right by 2020, and as they will no longer be able to rely on a married woman’s pension, thousands will, over time, still remain eligible for pension credit, even after 2016, over and beyond those with disability benefits, for example, and the new state pension. Therefore means-testing, as we all know, is not a good way of helping the elderly or of putting a safety net under them and ensuring that they have an adequate income. That is why I so welcome the new state pension.

My second objection to the Government’s removal of the light-touch regime of my noble friend Lord McKenzie is that it is profoundly unfair. A pensioner who retires after 5 April 2016 will, with 35 years, get a pension that includes an element representing the full non-means-tested pension credit. That has been built into the value of the new state pension. There will be no more means-testing for her. Yet a pensioner who retires a day earlier, on 4 April 2016, will be means-tested each and every year and for a less generous pension in total.

I well understand the need for before and after sets of provisions, known as cliff edges, although it is usually wise to build in transitional arrangements, if possible, to smooth people’s paths, or to produce steps in the cliff face. At the very least, the Minister should not be worsening the situation of those who already fare badly out of the changes. Here we not only see a sharp difference in treatment for pensioners retiring before and after 5 April 2015; the Government are actually worsening, as opposed to improving, the lot of those unlucky enough to be born a day too soon, by replacing five-year periodic means-testing with annual means-testing. Those who already will lose out are going to lose out even more. That is not decent; it is wrong.

If we think it right to abolish means-testing from the new state pension, why are we reimporting it and making it more oppressive for the already unlucky ones who do not qualify for that pension? They are doubly disadvantaged. We are not talking here about the deserving or the undeserving poor, merely the random accident of one’s birth date. The Government are deliberately widening the gap between older and younger pensioners and effectively making older pensioners, through their losses in pension credit or their failure to apply for it, help to cross-subsidise younger pensioners who are—or will be, under the new scheme—better off.

Whose state pension is the higher? Whose savings are completely untouched by the new regime? They are the younger pensioners, on whom more money is being spent. Who will become worse off and more worse off? They are the older pensioners, facing annual means tests for pension credit. It is profoundly unfair. I am surprised that the Minister does not see that and accept it.

Both concerns are heightened for older pensioners, usually widows, as they become increasingly frail and sometimes increasingly confused. As my noble friend Lord McKenzie said in Committee, they do not always keep and file papers or answer official correspondence, and may be puzzled by forms which

10 years before may have been easily understood. Is the Minister really expecting to means-test them at 80 and 85 and, if they live that long, at 90 and every year between? Do we give them no respite at all just because they are one day older than their next-door neighbour?

Bluntly, the older people get, the less likely they are to apply and reapply for pension credit correctly, and receive it. Not having enough money as a result, they turn down the heating or turn it off because they cannot afford it, and risk their health. They cannot afford helpful aids and appliances or contribute to domiciliary social care or their meals on wheels and they deteriorate quite fast—we have all seen it. They will have been means-tested every year for 10 years until the age of 75. Any small pots of money will long since have been taken into account under pension credit. Why do we keep both pursuing them and means-testing them? Their lives will become more difficult as they are widowed, their health declines, disability increases, their sight goes and perhaps their memory as well. Must we make getting an adequate income and accessing pension credit yet another task—frankly, another burden—for them? That is fine if they have family nearby, but many do not.

This amendment is very modest. It accepts, reluctantly, that the Government intend to make some £50 million or so net savings from annual means-testing of pensioners until the age of 75. We do not have the stats to know how much would come from means-testing the over-75s, and the DWP does not know that, although I have tried to find that out. My guesstimate is perhaps £15 million or £20 million. However, after 10 years of means-testing, I suspect that there would be such diminishing returns against the cost of administration that I doubt whether the savings would be worth the distress that annual means-testing of the very elderly, increasingly disabled, increasingly frail, increasingly confused pensioners would create. I believe that the Minister understands this. We all have elderly relatives who have had somewhat difficult lives. I hope that he will accept this amendment and make the situation somewhat less difficult than he at present envisages it. I beg to move.

Baroness Sherlock (Labour)

My Lords, in Committee the Minister came under sustained pressure on this matter from my noble friends Lady Hollis and Lord McKenzie, among others, and I am sure that he did not expect to emerge unscathed from Report. Many noble Lords pressed the Minister in Committee to try to understand what the consequences of this increase in means-testing would be. In particular, they were concerned about what would happen to those older pensioners who inadvertently, or perhaps negligently, fail to report changes of circumstances.

The Minister could not assuage our fears in Committee but wrote to us subsequently. That was helpful as it made clear what would happen. The letter he sent to us, dated 20 January, noted that claimants of any age who commit benefit fraud can be prosecuted. However, it also says:

“DWP may offer an Administrative Penalty as an alternative to prosecution. That penalty is 50% of the overpayment with a minimum value penalty of £350 and a maximum of £2000”.

When a claimant makes an error resulting in an overpayment, the letter explains that,

“a DWP decision maker will consider the full circumstances of the individual case … taking into account the reasons that led to the error”.

The letter then referred us to the guidance for decision-makers. I read this guidance so that noble Lords would not have to, and that is an hour of my life that I will not get back, so anyone who feels that he would like to buy me a drink at any point to say thank you is most welcome to do so. However, having done so, I then discovered the following. Incidentally, CPen means civil penalty and DM means decision-maker. The guidance states:

“Before imposing the CPen, the DM must establish that the claimant

1. has acted negligently and

2. has failed to take any reasonable steps to correct the error that led to the overpayment”.

I accept that the word “negligently” implies something serious. However, on the “Meaning of ‘negligently’”, the guidance continues:

“DMs should note that negligently should be taken to mean acting carelessly, not paying sufficient attention to the task in hand, or disregarding the importance of what is required to be done in relation to the claim or an award”.

In other words, that is a pretty low bar.

A number of noble Lords expressed concerns—as has been done very clearly by my noble friend just now—about what happens to pensioners who might struggle to keep the paperwork together or report every relevant change. The letter from the Minister said that robust safeguards are in place to ensure that matters such as mental capacity are considered. However, the guidance also makes clear that misrepresentation can involve simply leaving a section blank, perhaps because someone cannot figure out how to fill it in at that point and forgets to go back and do so later. The guidance also states at paragraphs 09206-7 that a claimant cannot avoid responsibility for misrepresentation just on the grounds that they claim they did not know what they were doing. It states:

“Non-responsibility is limited to those who are blind, illiterate or do not fully understand a particular form they have signed. Poor education, illness or inborn incapacity alone is not sufficient to show non-responsibility. People are expected to take reasonable steps to understand what they sign”.

This is exactly the sort of reason why so many pensioners dread means-testing and do not claim benefits to which they are entitled. If the Minister does not want to accept this amendment tonight, I plead with him to do one thing. Will he please take this guidance away urgently and have it revised before this legislation ever is introduced, so that pensioners are not expected to follow these kinds of rules?

Lord Freud (Conservative)

My Lords, assessed income periods were introduced by the noble Baroness, Lady Hollis, during the passage of the State Pension Credit Act 2002. At that time it was assumed that income and capital for those above pensionable age remained relatively stable and it therefore made good sense to relax reporting requirements, both for the individual and the department in terms of running costs. This was still the case in

2007 when the Government of the day introduced indefinite assessed income periods for those aged 80 or over.

The noble Baroness said just now that income and capital do not fluctuate by much. We have now tested those assumptions, analysed around 100,000 cases and come to the conclusion that there is actually a greater degree of volatility in people’s financial circumstances than she and the department had anticipated at the relevant times. In some cases, assessed income periods have allowed people to continue to receive pension credit following a change in their circumstances when they would not have been entitled to it had they made a new claim at that point. The evidence means that we have had to think again about the viability of the policy and have concluded that AIPs should be abolished. Ultimately, if we were to allow AIPs to continue, the taxpayer would be providing support to people who no longer need it. It would mean retaining a system in which we can only apply changes to retirement provision that would increase an award but cannot take account of windfalls that would otherwise see a reduction in or loss of benefit.

Let me be clear, we are not changing entitlement rules. We are changing the reporting system so that people’s benefit entitlement reflects their circumstances at the time. To that end, we are looking to simplify the reporting requirements so that we are able to support those who need it most and best target our benefit expenditure. I am of course mindful that by changing reporting requirements some people may find it more difficult to adjust, particularly those of the most advanced years who may have the greatest difficulty in contacting us. This is why existing indefinite assessed income periods in place prior to 2016 will continue.

For those new recipients, or those on fixed-term AIPs, we will have the opportunity to explain clearly what does and does not need to be reported at the point of claim or when their existing claim is reviewed. I stress that pension credit is already designed in such a way as to minimise reporting requirements. For example, changes to capital only need to be reported if their total amount exceeds £10,000. Currently, only 12% of people on pension credit have capital above that level. People would need to report new income streams, but we will continue to take into account annual increases in pensions automatically, based on what people tell us. We will also encourage people to tell us if their capital falls below £10,000 or if any income stops, to ensure that we capture beneficial changes.

The amendment from the noble Baroness, Lady Hollis, would allow for decision-makers to set an indefinite AIP for those over 75. Through our policy of matching entitlement more closely to circumstance, we estimate that annually managed expenditure will fall by around £82 million per year by 2020. Although we have been unable to estimate the exact reduction in savings, since we cannot predict how the overall savings will break down by age group in the future, our analysis indicates that setting indefinite AIPs for those over 75 could reduce savings by around 30%; that is a figure of £25 million, which is not that far different

from the £15 million to £20 million that the noble Baroness estimated. It is a high price tag on top of the protection that we have factored in for people already on indefinite AIPs. It is also a sum that we would need to find from savings elsewhere. I acknowledge that this is the upper end of the potential cost of the amendment by the noble Baroness, as discretion could be applied in setting indefinite AIPs.

In reality, as the noble Baroness will know, allowing a decision-maker discretion in an income-related benefit carries the risk of arbitrary or uneven decisions. If an indefinite AIP is not applied consistently to all those over a certain age, this also carries the risk of appeals and disputes. Quite apart from reintroducing further administrative complexity, we would still expect a proportion of these claimants to end up receiving an amount of pension credit to which they were not entitled and so we do not believe that such discretion is appropriate. This change would either increase complexity or reduce savings, or a combination of both. I know that the noble Baroness will be disappointed with this response, but I hope that I have made the Government’s position clear. We will maintain the indefinite AIPs already in place in order to protect those used to the current system. However, we cannot agree to an amendment that would raise false expectations by enshrining a power that we have no intention of invoking.

On the questions raised by the noble Baroness, Lady Sherlock, on our treatment of people who neglect to report change under the system, we recognise that people will need to adapt to the new system so we will look carefully at our communications to ensure that people have a clear understanding of when to report changes. Support is already available for older, more vulnerable customers and this will not change. Where it comes to light that a change has happened but not been reported, the circumstances of each individual case will be considered. There are robust safeguards in place when the decision is taken on whether to pursue sanctions. If, for example, a person’s state of health or mental health is considered relevant and meant that there was a reasonable excuse for their failure to report a change, a sanction would not be imposed in such a case.

On the point raised by the noble Baroness, Lady Hollis, on unfairness, I need to point out that there is not a real cliff edge here; the entitlement rules for these people will remain the same. There is a difference of treatment created by our decision to allow those on indefinite AIPs to remain so, but we believe that it is not right to change the rules that people are used to.

The other issue of concern to the noble Baroness was whether people would be deterred from claiming pension credit. There is no evidence to suggest that there will be such an effect or that having to report changes of circumstances deters people from claiming benefits.

Baroness Hollis of Heigham (Labour)

When the Minister says that there is no evidence, does that mean that he has sought evidence and there is not any, or does it mean that he simply does not know, or what? Has he evidence to prove that there is no deterrent effect? I suspect that the answer is no.

Lord Freud (Conservative)

Take-up of pension credit guarantee credit, which is aimed at the poorest pensioners, is already high at 82%. However, I think that it would be better if I offered to write to the noble Baroness on the exact nature of the evidence which I do or do not have. Actually, I do not need to write because I can tell her that her second supposition is correct. We do not have any evidence either way. With that covered, I ask her to withdraw the amendment.

Baroness Hollis of Heigham (Labour)

My Lords, I am not going to pretend that I am not disappointed with the Minister’s reply. I thought that he showed a degree of sympathy and understanding in Committee, particularly of the plight of older pensioners in their late 70s or their 80s, or perhaps older still, who are getting increasingly frail and confused. I thought he understood that. That is why in this amendment I dropped the idea of periodic assessments and simply suggested that, while the Minister does what he thinks is appropriate or is required to do on this in terms of having annual means-testing until the age of 75, at least from 75 onwards he could abandon the annual means-testing system.

I really do not think that the Minister has addressed the issue. He said, first, that he thinks that the savings would be reduced by 30%. I suspect that that is a slightly arbitrary figure, arrived at by dividing the number of years and the percentage of savings, but it takes no account whatever of the fact that means-testing will already have excluded pensioners at an earlier stage. I suspect that at least half his savings will come from the fact that pensioners do not claim what they are entitled to, rather than them not getting what they otherwise would by having annual means-testing.

The Minister said that if those under 75 were annually means-tested but those over 75 were not, that would give rise to appeals and disputes. What evidence does he have for that? After all, we have had periodic means-testing since 2008. How many appeals have there been from people under the age of 75 against the “no further means-testing at 75” rule, and what has been the result of those appeals? I shall give way to the Minister. He ran that argument, so I presume that he has some statistics for us.

Lord Freud (Conservative)

I shall have to supply the statistics separately and will do so in writing.

Baroness Hollis of Heigham (Labour)

My Lords, forgive me, but trying to persuade the House that this would generate appeals and disputes and not presenting to noble Lords what is already a firm basis of evidence from the existing situation does not seem acceptable. I rather doubt that the Minister has more than a couple of handfuls of cases but we will see when he digs out his statistics. I just do not think that it is a valid argument and I have not had a shred of evidence from him or the Box to support it, although I have plenty of anecdotal evidence to the contrary.

However, my deepest concern—and it is one that I do not think the Minister has addressed—is just how profoundly unfair this is. I am baffled that he does not seem to accept that argument. He is quite deliberately building means-testing out of the new state pension,

and I welcome that wholeheartedly. However, every reason he adduces for building it out of the new state pension applies equally for not continuing to means test after 75. Every argument that supports the new state pension works to support the amendment and not continuing means-testing after 75. If means-testing is so innocent, why get rid of it in the new state pension? The Minister knows as we all know, on the basis of good and effective DWP research, that means-testing is loathed by pensioners and they do not take up the benefits they are entitled to. That is what the Minister is counting on for his savings and it is profoundly unfair.

Pensioners slightly younger are built out of means-testing because the whole lot of pension credit has been thrown out of their new state pension. One day older and they are not only going to be means-tested but means-tested annually until the day they die, until they are 90. That is shameful. The Minister is widening the gap between younger pensioners, who will be

much better off and with no means-testing, and the pensioners who will be staying with the old system, who are already older and poorer and who will have a lower pension and face means-testing. He is widening the disparity rather than narrowing it.

That is not good enough. It is not decent. The Minister is profoundly wrong on this but, given the lateness of the hour, obviously I will not seek the opinion of the House at this time of night. I will withdraw the amendment but with a heavy heart because it is profoundly wrong to widen the gap between older and younger pensioners at a time when we are trying to build means-testing out of the system and the Minister is reinforcing it back in again. I beg leave to withdraw the amendment.

Amendment 22 withdrawn.

Consideration on Report adjourned.