Pensions act

Status of the bill: Enacted

Main purpose of the bill:

To make provision relating to pensions; and for connected purposes.

Main points of the bill:

Accelerates the existing timetable for increasing the State Pension age to 66.

Controversy:

One of the more controversial elements of the bill, this proposal allows the State Pension age to increase from 65 to 66 for both men and women between 2018 and 2020. In order to achieve this, the State Pension age for women will rise more quickly from 2016 to reach 65 by 2018.

In its 'Programme for Government' the Coalition stated that the date at which the State Pension age would begin to rise to 66 "will not be sooner than 2016 for men and 2020 for women". However, the Government has said that the rise had to be applied equally to both men and women in order to "comply with the EU Directive that requires equal treatment of men and women in social security matters."

But the proposal has been strongly criticised by the unions. Unite, which is running a "Give the Pensions Bill the Chop" campaign, has accused the Government of "a u-turn on their commitment to women", saying the move "hits women aged around 56 and 57 particularly hard, with very little time to prepare or amend existing plans." According to Unite, five million men and women in their late 50s are affected, and will have to wait longer for their State Pension.

The National Union of Teachers was equally scathing. NUT general secretary Christine Blower stated: “For the Government not to recognise the distress and financial difficulties this will cause many women is outrageous. This is yet another example of the Government’s disregard of the circumstances of people who are time and again being hit by their unfair, unnecessary and punitive proposals.”

The charity Age UK was concerned that the acceleration of the increase in the state pension age "will disproportionately hit those on lower incomes, who often have lower life expectancies and will lose a greater proportion of their retirements." Director Michelle Mitchell said: "We would urge politicians from all parties to consider the real impact this bill will have on nearly half a million people across the UK. Pension reform is necessary to better reflect our ageing population, but this particular change is not the answer."

However, the CBI supported the proposal. Neil Carberry, CBI Head of Employment and Pensions policy, described plans to increase the State Pension age to 66 as "a sensible response to the good news that we are living longer, healthier lives.”

The DWP has said that the State Pension age "must reflect increasing longevity to ensure that the state pensions system is financially sustainable, and fair to working-age generations."

Changes to the timetable for increasing state pension age to 66, together with accelerating the timetable for state pension age equalisation, are expected to result in net total gains to Government in income tax and National Insurance receipts of £8 billion (in 2010/11 price terms) over the period 2016-2026, due to increased employment.

The change to the timetable for increasing state pension age to 66 is expected to result in net total savings to Government of approximately £30 billion (in 2010/11 price terms) in expenditure on pensions-related and working-age benefits over the period 2016-2026.

The change to the timetable for increasing state pension age to 66 is expected to incur administrative costs to Government of approximately £10 million (in 2010/11 price terms) in total over the period 2016-2026. These costs include changes to IT systems and the communication of changes to individuals affected.
 

Amends the legislative framework requiring employers to automatically enrol employees into a qualifying pension system and to make contributions to that scheme.

Controversy

According to the Government, around seven million people are not saving enough for their retirement and recent increases in life expectancy and the present economic climate are placing "significant pressure on the pensions system." The Government believes that auto-enrolment into workplace pensions "will enable individuals to save for their retirement, whilst balancing the costs and benefits to individuals and employers."

The proposed measures include - changes to the earnings threshold for eligibility for automatic enrolment and the qualifying earnings band on which contributions are paid; the introduction of an optional waiting period of up to three months before the automatic enrolment duty commences; simplification of the way an employer can certify that their pension scheme meets the necessary quality test; and a change to the timing of automatic re-enrolment, so that regulations must secure that there is not more than one automatic re-enrolment date in any period of two years and nine months, rather than in any period of three years.

The DWP has said that together the auto-enrolment measures will ease the burden on employers and industry whilst maintaining the key aim of ensuring individuals are able to save for their retirement; also they will reduce contribution and administrative costs for employers. Annual tax relied and foregone tax revenue to the Government will also fall. The measures are likely to affect women more strongly than men due to underlying inequalities in private pension provision.

Pensions minister Steve Webb stated: "This Bill will radically transform the pensions landscape in this country. Millions of people, who currently have little or nothing put by for their retirement will, from 2012, find themselves enrolled in a workplace pension - setting them on the road to a more secure future."

The CBI supported the proposals, describing the Pensions Bill as "good news for businesses." CBI head of employment and pensions policy Neil Carberry said: "Many of our proposals to cut the administrative burden and reduce the likelihood of companies levelling down their pension provision have been adopted.

"Plans to allow firms to automatically enrol people after three months of employment are particularly welcome. This means employers won’t have to enrol short-term workers, who will usually opt out anyway. Proposals to introduce a simple way for existing schemes to show that they meet the new standards will make the reforms easier for businesses to manage. This makes it more likely they will maintain their existing pensions, which are usually more generous than the new standard."

However, Britain's largest union, Unite, which has around 1.5 million members, is calling for the required level of employer contributions to be increased. Unite supports the principle of auto-enrolment "on the basis that it requires all employers to contribute to their employees' pensions." But the union believes employers should be "obliged to pay at least double what employees pay, as only on that basis do we believe that lower paid workers have any chance of achieving a decent standard of pension."

The Federation of Small Businesses has described auto-enrolment as "a ticking time bomb" that will cost small businesses dear. FSB policy chairman, Mike Cherry, has warned that whilst the Government has put measures in place to make the enrolment process easier for micro firms, the cost to small businesses will be "at least an extra £2,550 a year" and the true administrative costs "could be extortionate."

The FSB is "extremely disappointed" that the Government has ignored its pleas to make micro firms exempt from auto-enrolment and is calling on the Government to publish "a proper impact assessment immediately to shed the true light on just how much these changes will cost small businesses." The Federation has also asked the Pensions Regulator to "adopt a light-handed approach" when the rules are put in place before any financial penalties are enforced.
 

Amends legislation providing for the indexation and revaluation of occupational pensions and payments from the Pension Protection Fund.

Controversy:

The Government's decision to change from the RPI to the CPI measure of inflation for the uprating of public sector pensions has proved highly controversial; so controversial in fact that two separate judicial review proceedings have been launched by public service unions.

The first legal challenge was brought in April 2011 by the Civil Service Pensioners' Alliance, the Police Federation, the National Association of Retired Police Officers, the FDA, the GMB, and Prospect; the second in May 2011 by the PCS, the NASUWT, the FBU, the POA, Unite and Unison. Permission to proceed with the judicial reviews was granted and a hearing is due to take place in October 2011.

The Government has said that as the CPI is calculated in accordance with a common EU methodology to measure price levels and is the index used by the Government to set the Bank of England's inflation target, it has concluded that CPI should be used consistently for uprating purposes for state benefits, public service pensions and the statutory minimum revaluation and indexation of private pensions.

It has been estimated that the change will devalue future pension entitlements by around 15% and unions believe that "millions" of working people will be worse off as a result.

Commenting on the launch of the legal challenge, Unite assistant general secretary Gail Cartmail said: "The switch to CPI is in our view, morally wrong and we hope to demonstrate through this action that it is also legally wrong. It is not acceptable for such a hugely significant change to have been forced through without any significant consultation."

NARPO chief executive, Clint Elliott, was equally critical, saying: “The Coalition Government decided to change to CPI indexation, despite clear assurances to public sector pensioners before the General Election and without seeking advice from the UK Statistics Authority. CPI does not properly reflect increases in prices and does not meet legal requirements."

And PCS general secretary Mark Serwotka warned: "We are committed to fighting this legally but we will also be asking our annual conference to agree to call a ballot for national strike action over cuts to pensions, as well as jobs and pay."
  

Allows contributions to be taken towards the cost of providing personal pension benefits to members of Judicial Pension Schemes.

Controversy:

The proposal to allow contributions to be taken from serving judges towards their own pensions was challenged by several peers who claimed that such a move would jeopardise the independence of the judiciary.

Defending the proposal for the Government, Lord Freud pointed out that the Lords themselves had recommended that the most effective way to make short-term savings on the cost of public service pensions was to increase member contributions and he insisted it was "right that judges, like other public service pension scheme members, should begin to contribute towards their own pensions."

Judicial pension schemes already allow for contributions to be taken towards the costs of widows', widowers', surviving partners' and children's benefits. According to Lord Freud, in 2009-10, judges paid £4.3 million in total towards dependants' benefits, compared to a contribution by the Government-and, ultimately, the taxpayer-of nearly £84 million. He said extending the contributory principle to cover personal pension benefits would "make an important contribution to our commitment to deficit reduction."

However, Lord Falconer, a former Lord Chancellor, rejected the claim saying: "We are talking about 800 or 900 people in all. The idea that the proposal would have a significant impact on the economy of the country is overstated."

And he argued that the proposal would allow the Executive to "hold the sword of Damocles over the judges and reduce their terms and conditions with a click of the fingers if the judges-as a group or individually-do something that they do not like." It would be, he said, "a significant breach of the constitutional principle to which we have adhered for as long as I can remember and which records show to be the case."

Lord Falconer was one of a number of peers to support an amendment put forward by Lord Mackay which would prevent ministers from introducing regulations obliging judges to make pension contributions when such an obligation was not in their original contract of service.

Lord Mackay claimed the proposed change would be "a breach of the general understanding of our constitutional arrangement that a judge's terms of service should not be altered adversely during his period of service." The amendment was withdrawn at committee stage in the Lords, but Lord Mackay said he may return to it depending on "a variety of circumstances".

The Bill allows for contributions to be phased in from April 2012; the rate of contribution has yet to be determined.
 

Progress of the bill:

The Pensions Bill was published on 13 January 2011.

Lords:
First Reading: 12.01.11 Second Reading: 15.02.11 Committee Stage: 01.03.11 03.03.11 15.03.11 Report Stage: 30.03.11 Third Reading: 27.04.11

Commons:
First Reading: 27.04.11 Second Reading: 20.06.11 Committee Debate: 05.07.11 07.07.11 12.07.11 14.07.11 Report Stage: 18.10.11 Third Reading: 18.10.11

Ping Pong: 31.10.11 Royal Assent: 03.11.11