Official Report (Hansard)
Date: 16 February 2012
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Committee for Social Development
The Chairperson: I welcome Gerry McCann, Seamus Cassidy and Doreen Roy. I remind members that we are at the Committee Stage of the Pensions Bill. We have already raised a range of issues with the officials as we have discussed this on a number of occasions. We have asked the officials to clarify or readdress some issues, and they have kindly attended today to assist the Committee in its consideration. Gerry, would you like to take the opportunity to recap from your point of view?
Mr Gerry McCann (Department for Social Development): Yes, thank you. If you are happy, we are going to split it between Part 1 and Parts 2 to 5 of the Bill. Seamus will say a few words on Part 1.
Mr Seamus Cassidy (Department for Social Development): It will be more than a few words. Good afternoon, Mr Chairman. Members have expressed concern about a number of issues in Part 1, particularly the impact on women of the equalisation of the state pension age by November 2018. I will provide a little bit of background, but everyone is familiar with the proposals and the existing legalisation, so I will be quite brief.
Members are aware that the existing legislation provides for the state pension age for women to equalise with men's at 65 by April 2020, and to increase to 66 for both men and women between April 2024 and April 2026. The Bill proposes to equalise the state pension age by November 2018 and increase it to 66 between December 2018 and October 2020. The proposed changes are estimated to result in a gross reduction in expenditure on pensioner benefits of around £810 million over the period 2016 to 2026, of which £57 million would result from the equalisation of the state pension age by November 2018 and £753 million would result from the increase of the stage pension age to 66 by October 2020.
By November 2018, the equalisation would affect approximately 7,000 women born between 6 April 1953 and 5 December 1953. The state pension age for that group would increase by between two and 16 months. Increasing the state pension age to 66 by October 2020 would affect an estimated 69,000 men and 70,000 women born between 6 December 1953 and 5 April 1960. State pension age for this group would increase by up to 18 months.
Consideration was given as to whether the original policy could be mitigated or changed, and the Bill was changed to ensure that no woman would face a delay of more than 18 months in reaching her new state pension age. This measure in itself was estimated to cost around £27·5 million in Northern Ireland. Given the underpinning policy objective of rebalancing the financial burden between those of working age and those of pensionable age, the need to ensure that the funding stream underpinning the social security system in Northern Ireland is not jeopardised, and the need to ensure that people on working-age benefits are treated consistently, the Department is unable to identify further mitigating measures.
If the revised timetable for equalizing the state pension age by November 2018 is not enacted, the cost to the Northern Ireland block grant is estimated to be around £57 million between 2016-17 and 2018-19. That does not take account of additional administration costs or any additional claims from women currently living outside Northern Ireland. Such a step would also break parity with GB and members are fully aware of the implications for the block grant.
It also raises a number of other issues, in particular, the ability of the Department for Work and Pensions (DWP) computer system to operate two different schemes. Pensioner benefits and working-age benefits would be affected. It is not quite as simple as just having a pension age for a certain group of people. That in itself would have to be impacted and costed, and costs would fall to us.
In light of the fact that there are no residence requirements for entitlement to a state pension and that we have reciprocal arrangements with Great Britain, we would have to consider whether we could legally prevent women living in Great Britain from claiming the Northern Ireland pension, rather than waiting longer to claim the GB pension. That is quite an important legal point to be clarified. In relation to the pension entitlement of European Economic Area (EEA) workers here and in Great Britain, we have to consider whether it would be necessary, or even possible, to calculate Northern Ireland pension entitlement on a pro rata basis. Obviously, cross-border workers, etc, acquire rights in Northern Ireland under the EU regulations.
A further issue arises regarding the equalisation of the state pension age. That must occur before the process of moving to 66 can commence. Under the Bill, the final tranche of women in the group identified would have a state pension age of between 64 years, 11 months and 65. If equalisation does not proceed as set out in the Bill, the increase to 65 would take the form of a cliff edge. A woman born on 5 November 1953 would have a state pension age of 63 years and six months, whereas a woman born the following day would have a state pension age of 65. In effect, the pension age would increase by 18 months overnight. The phasing arrangements currently contained in the Bill are intended to soften that to some extent.
To summarise those points, not equalising the state pension age by November 2018 would significantly increase expenditure on pensioner benefits over the proposals in the Bill and funding would have to be found. It would be a break with parity, and that might have serious implications for the block grant. It also raises legal questions regarding what territorial limitations, if any, can be imposed on entitlement to a Northern Ireland pension. It would raise questions as to whether separate systems for Northern Ireland and Great Britain can in fact be put in place on an operational basis. As I said earlier, that would have to be assessed and costed.
The proposed increases in state pension age would also have a knock-on effect on the qualifying age for the winter fuel payment. We estimate that, overall, around 139,000 people could be affected. Around 124,000 would qualify one year later than under current rules and around 15,000 would qualify two years later than under current rules. As we have previously pointed out, it is important to note that, where one member of a household has reached the qualifying age, the household will receive the full amount of the award. The effects of the proposals could, therefore, be significantly less than those figures suggest. We do not have data on the age relationships of couples in Northern Ireland.
The winter fuel payment was introduced in 1997-98, with the objective of targeting resources on pensioners to help them to meet higher fuel costs. Initially, entitlement was linked to receipt of one of a number of qualifying benefits. Payments were made to women aged 60 and over and men aged 65 and over: the respective state pension age for men and women. That changed as a result of a judgement of the European Court of Justice and the scheme was extended to persons aged 60 and over, regardless of whether they received a qualifying benefit. However, at that time the Secretary of State made clear that the age of entitlement would rise in line with the state pension age for women. The impact of the Pension Bill on entitlement to winter fuel payment does not, therefore, represent a change in policy. Winter fuel payments always have been and will continue to be a pensioner benefit.
The issue of pensioner poverty has arisen during the debates. I will address it as briefly as I can. We have already taken a number of steps aimed at increasing income in retirement. For example, the number of qualifying years required for a full state pension and the introduction of carers credits are helping more people, particularly women, to build up an entitlement to a full state pension. In the longer term, automatic enrolment will help more people to have an additional income in retirement. An important part of alleviating pension poverty is the Social Security Agency's benefit uptake programme, which is aimed at encouraging people to find out whether they are missing out on any benefits and providing them with the assistance that they need to make a claim. Since 2005, around 112,000 invitations have been issued to older people offering them a benefit assessment, which considers eligibility for all social security benefits as well as a range of other allowances and services, and 145,000 mail shots have been issued to older people to raise awareness of state pension credit. The current benefit uptake programme will provide over 22,000 older people with the opportunity of a benefit assessment.
A new outreach approach commenced in November 2009 and continues into 2011-12. It focuses on ensuring that older people are aware of their potential entitlement. In 2011-12, 10 council areas with relatively low uptake of the main pension and benefits are being targeted. That means that all council areas will have been targeted since 2009. The Make the Call campaign, which was launched in November 2011, uses a wide range of media to advertise a free phone number to encourage older people to find out whether they are missing out on benefits. So far, over 10,000 calls have been received.
Up to June 2011, the programme generated total additional annual benefits and arrears of approximately £37 million, of which £15 million relates to over 4,900 additional awards of state pension credit. The Department for Work and Pensions has conducted a research study on automatic payment of state pension credit to explore better ways of using available data. That included making awards of what was known as a modified state pension credit for a limited period without the need for a claim. A detailed evaluation report is expected in the spring, and any recommendations will be considered in Northern Ireland.
I think that we have covered the main areas of concern raised in Part 1 during our previous briefings. We are happy to take questions on that.
The Chairperson: Thank you. We will run across a range of the matters that have been raised. Today's process should be fairly simple. We are not going to be making formal decisions. We want to ensure that we have maximum Committee attendance at any of the meetings at which we will be making formal decisions. We have taken some points of clarification from the Department. Members or parties may wish to suggest amendments that they want to put to the Department on a without-prejudice basis. The Committee does not have to take a view on whether it likes them or wants to support them. A member might wish to propose a particular amendment, and I would like the Committee to agree that it would ask the Department to take that amendment away, formally consider it and come back next week with a yea or a nay or whatever the response might be. That is without prejudice to any member or party's viewpoint on any suggested amendment. In other words, if somebody puts forward a proposal or suggested amendment, other members do not have to take exception to it or agree or disagree with it. It is an opportunity for members to put suggestions directly to the Department. It is a fair way of dealing with it. It is a formal opportunity to make suggestions that the Department will consider and come back to us on next week. In advance of next week's meeting, we will notify members that we will probably be going through the Bill clause by clause, which will be an important event for us all.
Mr Brady: Seamus, you said that there was no change of policy as regards the winter fuel payment because it is payable to pensioners. However, if the pension age is changed, it is a bit disingenuous to suggest that, although the people who would have got it at 60 will now have to wait until they are 65, that is not a change in policy. It is not a change in that you are paying it to pensioners. However, it depends at what age you become a pensioner.
Mr G McCann: Yes, but the point is that at the time of it having been first paid at age 60, it was made clear that it would rise each time that there was any change to the state pension age for women. Really, all we are saying is that any of the changes to winter fuel payment are not flowing from the Bill per se, as a point of law.
Mr Brady: It does not make it right.
Mr G McCann: I cannot argue with you on that point, and I know your feelings about the effect on winter fuel payment. However, as a point of law, this Bill is not changing the policy on the winter fuel payment.
Mr Brady: The Government say that people of working age must take responsibility for their future. However, the Government are using their contributions to subsidise people who are entitled to pensions. There is a disjoint there. If you have an occupational pension, which is the type that people are being encouraged to buy in to, and you are getting employment and support allowance (ESA) contributions, you will lose half of anything over £85 that you get from your occupational pension.
The Chairperson: I presume that the issue here is whether it is possible to decouple the pension age from the age when winter fuel payments become payable.
Mr Brady: That is one issue.
Mr G McCann: The winter fuel payment has always been a benefit aimed purely at people who are of the age for a pension. That is how it started out. At the start, the winter fuel payment had been linked to pension ages: for women, the age was 60; for men, it was 65. A case was then taken to the European Court of Justice, which claimed that men and women were not being treated equally. That is why the state pension age for men and women has been made equal, because we are at variance with European law on that point.
The winter fuel payment always has been a benefit for pensioners. If we were to alter that, we would get ourselves into a problem. We would have certain people under state pension age who would be able to get winter fuel payment, and others who would not. We do not have any real, objective reason for saying that once someone hits the age of 60, they should get help with winter fuel, whereas someone aged 59 should not. That link existed only because the state pension age for women had been 60 for such a long period. It has never been linked to evidence that once someone turns 60, they suddenly need extra help with fuel. They had only ever been linked because 60 was the state pension age for women. As I said, at the time it had been made clear that, if there are any changes to the state pension age for women, the qualifying age for this benefit will rise with it.
Mr Brady: It is a fairly arbitrary thing. It is a bit like the single room rent, which stated that a young person is someone under 25, and now it is someone under 35. It is an arbitrary decision. I think you mentioned this, Seamus: someone born at 11.55 pm on one date may be eligible, but someone born at 12.01 am may lose out. That is how arbitrary it is.
Has there been any detail on the transitional arrangements? A figure of £57 million has been mentioned and that could cause the whole shebang to come down round us, apparently. Has any research been done into the transitional arrangements, or is it an arbitrary figure, perhaps designed to frighten us?
Mr McCann: It certainly is not a figure made up to frighten you.
Mr Brady: I would not have thought so.
Mr G McCann: The figure is based on all the work done in Britain and on how many people in Northern Ireland are affected.
Mr Brady: Is it possible to get any more detail on the transitional arrangements, particularly for the women who will lose out on 18 months' pension?
The Chairperson: In fairness, we must ask the Department whether it is possible to consider an amendment to fix that anomaly for those 7,500 women. I am trying to cut to the chase here. People may not agree. Seamus explained in some detail that it could cost £57 million, but that does not take into consideration administration costs or possible consequences, such as other people being able to qualify. Notwithstanding any or all of that, I would like the Department to consider an amendment that would fix that anomaly for those 7,500 women.
Mr McCann: Certainly, from our point of view, we have looked to see what we can do. Seamus has outlined our position. However, if any member of the Committee has another idea, we are very happy to go away and see whether there is something we can do with it. It is a question of whether we can we find the money and what it would mean for us to break parity.
Mr Brady: I would like to thank the Chairperson for outlining what is required so succinctly.
Mr G McCann: The costs could be broken down for each year, if that would assist the Committee. If any Committee member has any idea how we can do this, we would like to hear that. We have been looking to see what we can do within the various constraints in which we operate. We have not been able to find anything. If any member has anything at all that he wants us to look at or think about, we are happy to do so.
The Chairperson: OK. You will go back and look at the figures.
Mr G McCann: We already have those broken down, so it is only a matter of looking up the table for you.
The Chairperson: Obviously, when we get that, it might be a paper exercise. However, I certainly think that it reflects concern around the table about that particular group of women, which has been raised previously. Let us just examine it. We might not get different answers next week, but at least we will have the benefit of it having been looked at. We have to go through a formal process at Consideration Stage. We want to ask the Department whether it can absorb such an amendment. You might come back next week and tell us that you cannot. That is fine. Then, it is up to us to decide what we do about that in our clause-by-clause consideration. It will be up to the Committee to make a decision.
Mr Durkan: That is the very amendment that I am interested in proposing: to push back the timetable for equalisation to April 2020. The figure of £57 million does not scare me as much as the figures that the Minister threw around the Chamber that day.
Mr G McCann: If I may, I will clarify one point. If equalisation is to be put back to April 2020, the costs are far higher than £57 million. We would be talking very big money.
Mr Durkan: To what does the £57 million relate?
Mr G McCann: That would be the cost if we did not carry out the first tranche of changes up until the end of November 2018. We would have to factor in all of the extra costs for women. It also affects the state pension age for men. We cannot start to move it upwards until men and women are equal. If we were to do that, we would be in breach of European law. Therefore, we cannot even start that until such times as the pension age is equal for men and women. I do not have the figure to hand. Seamus might be able to throw it up.
Mr Cassidy: We think that it would be around £155 million for the tax years between 2016-17 and 2019-20.
Mr G McCann: That is the magnitude of the cost if we were to go down that route.
Mr Cassidy: The increase to 66 years of age would not be able to start until then.
Mr Durkan: That would have a knock-on effect.
Mr McCann: That is why the figure jumps by quite a large amount of money.
Mr F McCann: I want to make two points on the back of that. The first is the difficulty with giving the departmental officials our ideas about amendments and asking them to think about whether they would work. Their job is to sell the Bill to us and to dissuade us from making any decisions that might have a cost implication. Our position is to try to find an amendment that would ease the situation for people. Therefore, although there is no outright conflict, there is a conflict of interest between what their job is and what we believe our job is with regard to making amendments. Over the next week, we will try to come up with ideas for amendments to alleviate the pressure on women, especially during that 18-month period. Mickey raised the point about redefinitions: of young people from 25 to 35 years of age; and pensions from 60 to 65 years of age and, then, 68 years of age. That will have a dire impact on many thousands of people.
One issue that I have picked up during the past number of months, especially while we have been considering this element of the Bill, is the total lack of knowledge out there about what people can expect. I do not know whether the Department has funding to allow people to go out and explain what can be expected. Certainly, from my experience, when you talk to people about it or attend some of the meetings that have taken place — some of which were sizeable — they are left shell-shocked. It is a matter of trying to work that out as well.
Mr G McCann: I will take your last point first. Various changes have been made to the state pension age and are already law. Each woman who has been affected has been written to, to advise them of those changes. We are going to write to those affected by the further changes, but we cannot do so until the Bill is through. I think that letters have already started to go out to people in Britain. Our aim is to move as soon as we can after our Bill is through to write to the people who are affected. We will tell them what their new pension age is. Therefore every woman who is affected in the first tranche, up until the end of 2018, should get a letter telling them what their new pension age is.
Mr F McCann: Gerry, everybody who gets a letter from the Social Security Agency has to go to at least three advice centres to find out what it means.
The Chairperson: Let us not take ourselves off on a tangent. In this case, what we are talking about is, in simple terms, an anomaly that affects 7,500 women, or thereabouts. Seamus gave a considerable amount of information on that. He said that altering it could cost £57 million and that it breaches parity, etc. As I said earlier, this is without prejudice to any member's or any party's view. We are looking to see whether the Department can go away this week and decide whether it can, in principle, absorb an amendment to cater for those 7,500 women. It might require the member who is interested in it to talk to you midweek, tomorrow or Monday to look at shifting the trigger date by two months, three months or six months, for example. I am throwing this out off the top of my head.
I am trying to address the anomaly that people feel is there. It might cost more than £57 million to fix, but, theoretically, it might be fixable. It might not be. All that we are trying to do is establish what the situation is and ask the Department to formally consider it. I have no doubt that the officials will come back next week and say that they cannot change that, for many of the reasons that they have outlined. However, having talked to members, officials might think that they could do something, but that it would cost us. At some point, the Assembly will have an opportunity to consider that in the round. We are trying to identify what we think is the problem and ask the Department whether it can facilitate that. That will be a yea or nay.
Mr G McCann: If any members wish to speak to any of us to talk through this, we will be more than happy to try to help in any way we can. However, if you want us to be back next Thursday, those talks will have to happen early in the week, because I will have to put to the Minister anything that you put to me.
The Chairperson: I appreciate that.
Mr G McCann: All policy decisions rest with the Minister.
Mr F McCann: I have another point. I could phone Gerry during the week and suggest scrubbing the increase of women's pension age to 65 and say that I want to put in an amendment that lowers men's pension age to 60. There would be dire financial considerations with that, but it might not stop me wanting to put in an amendment.
The Chairperson: That is not the point. The point is that the process that we are involved in is to ask the Department to go away and consider what it believes to be a reasonable amendment or proposal. Others may or may not agree with you. The Department may or may not agree. If the Department disagrees, it is still open to any member, even those not on this Committee, to table an amendment to the Bill in the Assembly. This is without prejudice to anyone's view. The Department is saying that it will consider it, and it has invited anyone who wants to talk to them to do so. I recommend that people do that as and from tomorrow, or no later than Monday. Next week, we want to get a formal response from the Department to concerns that have been raised by members. Then we will start the process of clause-by-clause consideration. If you get a no from the Department, you have an opportunity to put it to the Committee and seek Committee support. You may or may not get that. If not, you can still table an amendment in the Assembly. This is not about rehearsing any of the arguments, because the arguments have been put and, I have no doubt, will be put again. In fact, in many cases, they will need to be put again.
I certainly would like the Department to consider whether there is a reasonable amendment that could be put forward that addresses our concerns. That is what we are asking the Department to do. I invite one or two of my colleagues, or Mark, who is also concerned about this, to talk to the officials at an early opportunity.
Are members content to do that?
Members indicated assent.
The Chairperson: Do any members want to draw attention to or seek clarification on any other issues, or suggest an amendment? No? We are all happy.
Mr G McCann: I will move to Parts 2 to 5. Doreen will quickly address the issues that you raised last week.
Ms Doreen Roy (Department for Social Development): The question of tax relief was raised in relation to contributions to an auto-enrolment scheme. As you know, we cannot comment on tax matters. However, to assist the Committee, we checked up on the issue. The tax relief regime for auto-enrolment will be the same as that which operates for existing pension schemes. If operating a net pay arrangement, as most occupational schemes do, although not the National Employment Savings Trust (NEST), employee contributions will be deducted from gross pay before tax is deducted.
The employee pays tax only on what is left. The employee will, therefore, receive income tax relief at his or her marginal rate straight away: that is, basic or higher, whichever is applicable. Where a scheme operates relief at source — personal pension schemes, some occupational schemes and NEST — employee contributions are deducted from net pay after tax has been deducted. The pension scheme then claims the tax relief due at the basic rate, which is currently 20%. Higher rate 40% taxpayers can claim the difference back through their tax return or by telephoning or writing to Her Majesty's Revenue and Customs. Additional rate 50% taxpayers can claim the difference only through their tax return.
Mr G McCann: Gregory is not here today.
The Chairperson: He can read the Hansard report.
Ms Roy: Last week, we touched on what would happen if a member died before pension age. At we said then, some schemes will provide survivor benefits. However, others, such as NEST will, on the death of a member, instead pay the member's pension pot to a person or persons nominated by the member. That could be a spouse, partner, dependant or anyone of the member's choosing. When a member reaches pension age and uses their pension pot to buy a pension, they will be free to choose whether to purchase a pension purely for themselves or one that will provide for a survivor on their death.
The Committee discussed the three-month waiting period before an employer has to auto-enrol an employee. As we said, that is designed primarily as an easement for employers. The Committee had concerns about that provision, with some members feeling that it was weighted in favour of the employer. I would like to clarify that if the employee wishes, the employee is able to opt in at any point during the three-month waiting period. Once an employee is enrolled in a scheme, he or she is free to opt out if and when he or she wishes.
There was also discussion about the Government's decision to use the consumer prices index (CPI) rather than the retail prices index (RPI) as the measure of inflation for indexation and revaluation. However, it is important to make clear that the change has already happened and the Bill is merely making technical and consequential amendments flowing from that change. That is by way of clarification.
In relation to cross-border workers, as we outlined, a jobholder working in Northern Ireland would normally be auto-enrolled irrespective of whether they live in Northern Ireland or across the border in the Republic. The position becomes more complicated when a person works in both jurisdictions, as that may bring us within the remit of the European employer and the special rules that apply to cross-border schemes: that is, a scheme that might have to comply with two sets of laws in different jurisdictions. That is a fairly technical area and one that we will be considering in detail when we come to clause 18 of the Bill.
During NIPSA's evidence, Bumper Graham stated that NIPSA did not believe that NEST was an appropriate pension scheme for auto-enrolment purposes. It appears that NIPSA believes that auto-enrolment should be into defined benefit schemes rather than into defined contribution schemes such as NEST. Are members happy with the terminology, or does the Chair want me to explain what we mean by defined benefit and defined contribution schemes?
The Chairperson: You are OK, Doreen.
Ms Roy: The big difference between the two is that, with a defined benefit scheme, the employer is liable to make good any scheme deficit or underfunding. It is a harsh reality that defined benefit schemes have, for some years now, been in decline, with employers either closing down their schemes, closing them to new members or changing to defined contribution schemes. Many employers argue that increasing longevity was exposing them to open-ended pension liabilities that had never been anticipated when they first provided defined benefit schemes. It is not considered realistic to compel employers to auto-enrol their employees into defined benefit schemes with all the accompanying funding liabilities. Indeed, doing so could, potentially, make many employers insolvent. However, employers are free to auto-enrol their employees into a defined benefit scheme if the employer wishes, and, indeed, we expect many employers who run existing defined benefit schemes to do just that. I hope that you find that useful and that we have been able to provide greater clarity on some of the issues.
The Chairperson: Could what you mentioned in your last point create a situation where people think that they are in a reasonable pension scheme but, several years down the line, discover that it is not what they thought it was?
Mr G McCann: If a scheme based on a defined benefit system ends up in bother, there is a Pension Protection Fund (PPF) that means that a person will not end up with no pension at all. We already have a system in place to make sure that people do not end up totally without any pension if it falls under a defined benefit scheme.
Mr F McCann: What happens if somebody has spent your fund?
Mr G McCann: The PPF will cover those situations if you are a member of what is called a scheme based on a defined benefit system. A defined contribution pension scheme does not have that safeguard. What happens with that is that all the money is put into a pot and invested, and your outcome is linked to what has been put in, the amount of time it has been in and how all that money has been invested. So, at the end of the day, you are at the mercy of the stock market in some respects. That is the big difference between the two schemes.
Mr F McCann: I have one point on the opting in and opting out. Maybe I have a suspicious mind. In benefits, a lot of stuff is sanction-led. When this Bill becomes law, if they want to change any aspect of it, especially the rights of employees to opt in or out, will additional legislation be needed or can it be changed within the confines of the Bill?
Mr G McCann: The basic premise of opting in and out is set out in the Bill. To alter that Bill after it becomes law, you would need a further Act. Under the Bill, we have a power to make various sets of regulations, and the Bill sets out in detail the various rules that somebody has to follow. They can be changed by our making further regulations, but, again, any proposal would have to come to the Committee.
Mr F McCann: I am thinking about the general Bill.
Mr G McCann: A further Bill would be needed to alter that. The main bones of the scheme are set out in the Pensions (No. 2) Act (Northern Ireland) 2008.
The Chairperson: If the principle of protecting the rights of the employee as well as the employer to opt in or opt out is enshrined in the legislation, would new legislation be required to change that?
Mr G McCann: Yes.
The Chairperson: Fair enough. There are no other queries or requests. Thank you for your help this afternoon. We will see you next week.