New Clause
26
Combined
pensions forecasts
‘The
Secretary of State shall publish proposals, no later than 1st April
2008, for the delivery of accurate combined pensions
forecasts.’.—[Mr.
Laws.]
Brought
up, and read the First time.
Mr.
Laws:
I beg to move, That the clause be read a Second
time.
I am afraid it
is me again. We are making good progress this afternoon, and I am
delighted to have had the support of several hon. Members on the last
new clause. The last time it was debated or discussed, the hon. Member
for Runnymede and Weybridge (Mr. Hammond) said that it was a
silly Liberal Democrat gimmick, so I think that I am making some
progress in convincing other colleagues of the strength of my
party’s
policies.
We now come
to new clause 26, and I shall start this brief debate, Mr.
Gale, by asking how you would feel if in the near future you received
through your letterbox an orange envelope with a Swedish postmark. You
might be tempted to stick it under the newspaper on your breakfast
table, unsure of what it might contain.
The
Chairman:
Order. I might be terribly excited, but I am not
prepared to be drawn into the
debate.
Mr.
Laws:
I shall not draw you into it any further,
Mr. Gale, but I shall enlighten the Committee by informing
you that that is the way that in Sweden you would be informed about
your future state pension and, I believe, private pension entitlement.
Indeed, the Secretary of State confirmed to the Select Committee on
Work and Pensions that he recently visited Sweden, and saw for himself
the orange envelope that is distributed to pensioners there.
Our Government are looking into
the matter as a result of its having been raised in the Select
Committee’s report. In their response to that report, they
stated:
“The
Government anticipates that DWP will continue to provide information
about different types of pension saving, and this will include personal
accounts. The Government will be working with external stakeholders to
develop an evidence-based information strategy for communicating
information about pensions and personal accounts over the next
year.”
That is welcome,
because the more people know about how much pension they are likely to
end up with in retirement, the more likely it is that they will be
energised into making pension provision—perhaps. At the moment,
there is a great deal of uncertainty about how much people are going to
receive in retirement, and that adds to individuals’ complacency
and lack of interest in their own provision.
On the other hand, we know how
difficult big Government IT projects can be. My hon. Friend the Member
for Northavon (Steve Webb) tells me that he believes that the
Government were looking into the matter a few years ago, but discovered
that such was the complexity of the pensions system, with all its
means-tested benefits, that it would be extremely difficult and
dangerous for the Government to make forecasts about people’s
entitlements. He said—I am sure that the Minister will confirm
whether it is true—that the Department had cold feet for a
little while about such forecasts.
Mr.
Laws:
Perhaps the hon. Member for Eastbourne, whose
experience is longer than mine, can help the
Committee.
Mr.
Waterson:
I remember being shown a prototype of the online
pension planner with the hon. Member for Northavon, who was doing the
hon. Gentleman’s job at that time. Did he notice the
Government’s recent announcement—I think it was in
response to a question from me—that they were abandoning work on
the online pension planner, having spent some £3
million or £4 million on a project that had gone
nowhere?
Mr.
Laws:
The hon. Gentleman is right. He helps to clarify the
point that my hon. Friend the Member for Northavon made. That shows
some of the policy and IT dangers that there are in making such
forecasts. This brief debate is an opportunity to hear from the
Minister about how the work is progressing. It is also an opportunity
to clarify whether the Government’s ultimate objective is to
ensure that in future people get an indication of both their state
pension entitlement and their personal entitlement, including personal
accounts. Alternatively, do the Government feel that at some stage they
might pursue the obligation in relation to the state pension forecasts,
and impose obligations on those who provide occupational and personal
pensions to provide separate forecasts for those? This is a probing new
clause, and we look forward to hearing from the
Minister.
The
Minister for Pensions Reform (James Purnell):
As the hon.
Member for Yeovil said, we have been providing state pension forecasts
for many years. In 2003, we started targeting those who had not
received or requested a forecast. Providing people with a forecast is
one way of making them aware of how much they will get in retirement,
and we hope that it also stimulates extra saving by people who are not
saving enough.
Andrew
Selous:
I know that the Minister has barely got into his
stride, but I am interested in those forecasts, and should like to take
him back to the debates that we had on deficiency notices. Is any
mention made in the forecasts that are sent to people of the fact that
they could pay voluntary national insurance contributions where they
have a number of jobs that do not individually bring them above the
lower earnings limit?
James
Purnell:
I am afraid that I do not know the answer, so I
shall add to the hon. Gentleman’s voluminous
correspondence—but not before the end of this Committee’s
proceedings, unless a missive is passed to me.
The forecasts that I was
talking about provide information, together with a projection of
private pension entitlement. By the end of December 2006, more than 9.7
million combined pension forecasts had been issued, covering both state
and private pension entitlement. I hope that that reassures the hon.
Member for Yeovil that the Department takes seriously its obligation to
provide people with information. We are of course looking at pension
forecasts in the light of the Select Committee’s
recommendations, and in the light of personal accounts and the need to
ensure a co-ordinated approach to informing and educating individuals
during the reform transition period and
beyond. We are currently looking at the role that pension forecasts
play, both in assisting people to plan for their retirement and in the
context of personal accounts. As has been mentioned, we are working
with the Treasury on financial capability in general and generic
financial advice in particular. When personal accounts are up
and running, scheme members will of course be provided with an annual
statement of their rights. We shall consider proposals on combined
pension forecasts as part of those wider considerations. I am about to
sit down; if the hon. Member for Yeovil has a question, I should be
very happy to take it. Otherwise, I urge him to withdraw the
motion.
Mr.
Laws:
I was tempted to intervene on the Minister, but
given that new clause 26 is probing, I decided not to. There are lots
of issues to do with how the Government will deliver the forecasts, how
they will integrate them with personal accounts and how frequently the
forecasts will be sent out. There might be other ways for the Minister
to supply us with that information, so I hope that we can return to the
issue at a later date. I beg to ask leave to withdraw the
motion.
Motion and
clause, by leave,
withdrawn.
New
Clause
27
Pension
credit disregard
‘The
Secretary of State shall bring forward a report, no later than 1st
April 2008, on the labour market disincentive effects of the operation
of the Pension Credit system, for people over entitlement age for
Pension Credit, in employment.’.—[Mr.
Laws.]
Brought
up, and read the First
time.
Mr.
Laws:
I beg to move, That the clause be read a Second
time.
The new clause
is about the pension credit disregard. It would require the Secretary
of State to bring forward a report no later than 1 April 2008 on the
labour market disincentive effects of the operation of the pension
credit system for people over the age of entitlement to pension credit
who are in employment. The new clause is a probing amendment, to see
whether the Government will respond to the recommendations of an
earlier Work and Pensions Committee report on pension credit, back in
the 2005-06 Session, in which the Committee repeated its previous
recommendation that the Government should reconsider the treatment of
earnings and pension credit, taking particular account of the number of
pension credit claimants who might wish to engage in paid work. The
point is that currently large numbers of people who pass the age of 60
have a pension credit entitlement. The disregard for work for those
people who receive pension credit is £5 a week, but it has not
been changed for quite a number of years.
An important part of the
Government’s solution to low incomes in retirement seems to be a
quite reasonable expectation and aspiration that people should seek to
work on for longer, at ages that are traditionally associated with
retirement. It seems ironic that, because of the operation of the
means-tested pensions system and the pension credit, there is quite a
powerful disincentive for people in that situation
to carry on working. The Select Committee recommended that the
disregard, which has remained static for so long, should be reviewed.
If it is not to be reviewed, it would be interesting to know whether
the Government have any other ideas about how to remove the
disincentives for people in those
circumstances.
James
Purnell:
Given that the hon. Gentleman’s policy is
to abolish pension credit, what would be the effect of that on people
aged between 60 and 65 who currently receive
it?
Mr.
Laws:
We have never said that we would abolish every
element of means-testing in the entire pension system. We said that we
would massively reduce the number of people on means-testing, back to
below 50 per
cent.
James
Purnell:
I thought that the hon. Gentleman’s leader
had said that he was committed to abolishing pension
credit.
Mr.
Laws:
The Minister might be confusing that with the state
second pension, which we are committed to phasing out in the long term,
respecting the existing accruals, so there is a misunderstanding. I was
about to bring my comments to a conclusion, but it would be ungenerous
not to give the Minister an opportunity to intervene again on me, as I
have often done so on him. However, with those comments, I now hand
over to him for his formal
response.
James
Purnell:
I shall happily write to the hon. Gentleman about
that. From memory, I think that there is a clear quote from his leader
about abolishing the state second pension, and perhaps the savings
credit as well. I shall be interested in the hon. Gentleman’s
answer on that issue and in what he would do with the carer and
disability premium in pension credit, an issue that he still has not
clarified. He could tell us now if he wanted; it is our last
day.
2.15
pm
Mr.
Laws:
Come to my
seminar.
James
Purnell:
Perhaps he will tell us on
Report.
The new clause
relates to state pension age equalisation. Men aged between 60 and 65
get pension credit because we have to make it available to men and
women at the same age. We had to choose between the ages of 60 and 65
and we decided to go for 60.
On Tuesday, we had a good
debate on the overall issue of the state pension age, but I want to
correct something that I said during it. The hon. Member for
Weston-super-Mare asked me to confirm whether the projected increase in
life expectancy for non-manual workers, based on the DWP’s
extrapolation from ONS data, meant that the gap in life expectancy
between manual and non-manual workers was projected to narrow. I
replied that the gap had narrowed in the past and, if extrapolated
forward, would continue to narrow. I am afraid that that was completely
wrong. The truth is that the life expectancy gap between manual and
non-manual workers has grown in the past
few years; I was looking at the projected decrease in the life
expectancy gap between people in Scotland and
England.
ONS
projections indicate that life expectancy for the average man in
Scotland will increase more rapidly than elsewhere in the UK. Although
the life expectancy gap between men in England and in Scotland
increased between 1980 and 2006, it is projected to narrow between now
and 2050. The figures suggest that longevity may improve more quickly
among manual workers, whose life expectancy is currently below the
average, although I would not wish categorically to state that that
will be the case, given the absence of robust
data.
Let
me return to the substance of the new clause. As I said, pension credit
has to be available to men and women at the same age and is therefore
available to men at age 60. Clearly, the availability of the guarantee
credit element of the pension credit can be perceived as a disincentive
to work for men aged 60 to 64. Although unemployed men in that age
group are technically of working age and are entitled to claim
jobseeker’s allowance, they are also entitled to choose to claim
pension credit. By so doing, they bypass the conditionality elements of
jobseeker’s allowance that would require them to engage actively
with the labour market.
The income that such men
receive is less than what they would earn from working full time, by as
much as £46 per week for those working 30 hours per week at the
minimum wage. However, the pension credit system enables men over 60,
some of whom may face considerable barriers to work, to withdraw from
the labour market. As I said, pension credit is available for men at
age 60 because of the provisions on equal treatment with women in the
State Pension Credit Act 2002. That Act links the qualifying
age for the guarantee element of pension credit to women’s state
pension age, so by 2020 pension credit will no longer be available to
working-age men and its labour market disincentive effect will have
been nullified.
The
Government’s policies for increasing the labour market
participation of older workers centre on increasing the choice and
opportunities for individuals to work and plan for retirement. In line
with that approach, pension credit is one of the qualifying benefits
for the new deal 50-plus. So although pension credit claimants are not
required to search for work, they are free to do so and are eligible
for extra support through Jobcentre Plus.
The hon.
Member for Yeovil raises an important issue: extending working lives is
an important goal. If we succeed in increasing the employment of older
workers by 1 million, we will also increase GDP significantly and
reduce poverty. I understand the valid reasons behind his amendment. I
shall be happy to come back to the House if there are further
developments, although I do not think that a full report would be
justified at this stage. As we have said before, we are constantly
considering our policies on extending working lives. If the hon. Member
for Yeovil or the Conservative Front Bench have any suggestions, we
would be happy to look at them. With that, I urge him to withdraw the
motion.
Mr.
Laws:
I am not sure whether to be encouraged by those
comments. My new clause was valid and I was raising important
points—it all sounded quite exciting
and unexpected. I was anticipating the normal knockabout stuff. We heard
a degree of discomfort from the Minister. He said that this slightly
anomalous situation will be extinguished in the fullness of time by the
women’s pension age equalising with the male pension age; in the
meantime we are left with the slightly odd situation where the
Government are trying to encourage people into employment but allowing
them to take the pension credit from age 60 and, through the operation
of the means-tested benefit system, creating a disincentive to their
taking employment.
The Minister is clearly in some
discomfort as a result of the tension between the reality and
Government policy. He did not say anything about the possibility of
increasing the disregard, unless I missed that. It does not look as if
he wants to intervene on me now to clarify that. I will simply have to
accept that the door was not slammed completely in my face. I will have
to pretend that it was a triumph and I will return to this at a later
stage. I beg to ask leave to withdraw the motion.
Motion and clause,
by leave,
withdrawn.
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