Work and Pensions Committee
Oral evidence: Understanding the new State Pension, HC 550-i
25 November 2015
Ordered by the House of Commons to be published on 25 November 2015.
Members present: Rt Hon Frank Field (Chair), Heidi Allen, Mhairi Black, John Glen, Richard Graham, Craig Mackinlay, Steve McCabe, Jeremy Quin, Craig Williams
Examination of Witnesses
Witness: Rt Hon. Steve Webb, former Minister of State for Pensions, gave evidence.
Q1 Chair: Welcome, Steve. You know the drill. Might you please identify yourself, only for the sake of the record?
Steve Webb: Yes. I am Steve Webb. I was Minister for Pensions from 2010 to 2015. I am Director of Policy at Royal London but speaking in a personal capacity today.
Chair: Great. Thank you.
Q2 Craig Mackinlay: Jumping straight in, Steve, what would you describe as the main objectives of the State Pension reforms? There are three angles. Obviously, one is to simplify the State Pension. Is there a danger the transitional arrangements undermine this objective? Carrying on from that, what are the main risks to the successful implementation of what on paper looks like a good policy, and what are the risks of lack of public awareness of these reforms that we are picking up?
Steve Webb: I would guess there are three main objectives of the reform. As you say, first of all, a simpler system. I think of my teenage kids. They will start work shortly. They will know that if they have 35 years in the system, they will get the flat rate, end of story. In fact, for anyone in their 20s, 30s and 40s, the vast majority will just get the flat rate; they can plan and they know what they are going to get, whereas nobody understands the system we have come from. Contracting out and all of the rest of it—nobody knows what they are going to get. That was the first goal.
The second goal was to improve outcomes for people who did not do well under the current system, particularly many women and the older women. They principally did not do well because the time they spent bringing up children decades ago was not, at the time, properly recognised in the system, so we have retrospectively revalued what they did. Likewise the self-employed, who I think are one of the big problem areas still of pensions. They get better outcomes. That is the second group.
The third thing was to make auto-enrolment work by reducing means-testing. The nightmare scenario is you have a basic pension in today’s money of £115, you have a means test of £150-odd, so the first £35 you save is greatly clawed back by the state, so why would you auto-enrol someone in a low-paid job to save a small amount, only to be means-tested back? We set the new State Pension just clear of the basic means test so that auto-enrolment worked, rather than being undermined by means-testing. Those were the goals.
In terms of communication, clearly it is important people know where they stand. One thing I was very keen on is that people got personalised statements. People are so diverse and have such different histories in the State Pension system that you cannot get a general message across. So my priority was personal statements. I gather by now the DWP has issued half a million personal statements to individuals telling them exactly where they stand. We could not start until the 2014 Act had Royal Assent because Parliament would not have worn that, and of course Parliament might have changed it, so we could not send out statements based on what we thought it was going to be because Parliament might have changed the rules. So we have really only had since May 2014. My first priority was statements for people closest to pension age, first those within five years, then those within 10 years, and now anyone over 55 can get a personalised statement and that will help them to plan.
Q3 Craig Mackinlay: What is your consideration of public awareness so far?
Steve Webb: We did run advertising campaigns. We did not have much of a budget for it, but I have stood in front of big posters and pulled them back, and we have had national newspaper adverts and all the rest of it. We had three goals. The first was to tell people who were already pensioners not to worry. We were getting letters from people who were already getting £170, £180 or £190 who thought we were going to take money off them, so we tried to communicate, “Don’t worry; it’s okay.” The second thing we tried to communicate was, “Get a statement. The best way to find out how you stand, if you are not sure, if you are confused, we will tell you within a matter of weeks and, in time, digitally.” The third thing was to encourage people who had gaps in their record to fill in the gaps. Those are the three things we tried to achieve.
Half a million people have now asked for statements. With the Pension Wise service and the Pension Wise website—although Pension Wise gets criticised, there are a million hits on the Pension Wise website, and that says, “Before you make plans, get a statement.” My focus was, “Because general messages are just going to be wrong for each individual, because everybody is different, get a personal statement and that is the best way to find out.”
Q4 John Glen: One of the issues that seems to be difficult for people to grasp is the relationship with national insurance contributions. As I understand it, if you have not made at least 10 years’ contributions, you will not be entitled to anything. While the strategic goal if you contribute 35 years is clear and understood, for people in the system now there is obviously a vast range of experiences of NI contributions, which imperils the objective being realised for most people, hence there is a sense of disappointment emerging. Is that a valid criticism? Was there any way around that, given the situation with NI contributions?
Steve Webb: Yes. First of all, let me pick up on the 10 years’ point because that is a very specific point. Until 2010, you could not get a State Pension if you did not have a quarter of your working life, which was 10 years for a woman. For a long time there has been just a de minimis. It is a contributory system. If you do not even have 10 years in, you have not really been in the system. If you spend your life in this country, it is almost impossible not to get 10 years, because you get credits for being unemployed and looking for a job, for being sick and unable to work, being a carer and bringing up children. You just cannot not get 10 years if you are outside prison, frankly. That is almost the only way. What the 10-year rule does is it saves a bit of money, which we can spend on the system, on other people, and it is largely people who have come into the country late in life, who may well have pension rights somewhere else anyway. It was a way of taking away from a group who have not really put much into the system, to benefit the rest.
More generally, what is the link between NI and the outcome? We will need to talk about contracting out, and that moment had to come because that is the key. Apart from contracting out—if we park that—you do your 35 years, you get the flat rate. You do 34, you get thirty-four thirty-fifths. It is what you would expect. Contracting out is the big challenge, and if I may just do 30 seconds on contracting out because it is so important. We had a real dilemma. Millions of people, including all of us who have ever been in the Parliamentary Pension Scheme, have paid less NI than our neighbours. We have been contracted out. Our employer paid less; we paid less, and a deal was done that the scheme would replace part of the state benefit. That was the deal. The question is: we get to 2016 and there is no contracting out, there is just one pension, one bit of the system, so what do you do with the past contractors-out? There are two extremes. One is you forget contracting out ever happened, which would be beautiful, simple and clear; I would have loved it. But it would have cost billions because all of us would have suddenly got full State Pensions, not reduced ones, and it would have been grossly unfair on our next-door neighbours, who never contracted out, who paid more NI than we did and still got the same pension. So we could not afford to do it and it would not have been fair.
The other extreme would have been to remember contracting out forever, to say, “Right, you spent one year, once, contracted out. We will remember that forever.” So my daughter starts work and does a year contracted out before we abolish it. In 50 years’ time she retires, goes on getting a pension, God willing, for another 20 or 30 years, and in 70 years’ time we are still deducting for contracting out. That would have been ridiculous.
What did we do? We did a compromise. We said, “In 2016, we will once adjust for past contracting out and make a one-off deduction. That is fair. But then, post 2016, we will allow you to burn off that deduction by subsequent work and contributions.” That is why in 2016-17 not many people get the flat rate, because people have not had time to burn it off. But by the end of this Parliament, the majority of new pensioners get the flat rate. So within four or five years, we are already in a situation where the majority are getting the flat rate. I would love it to have been far, far quicker—that would have been great—but there was no money to spend. When I went to the Treasury wanting to reform the State Pension, the one thing they said to me is—and I paraphrase slightly—“Steve, you can do what the hell you like, just don’t spend any more money.”
Q5 Chair: Steve, you were saying the crucial part was the women who were being most affected nearest retirement age, and I had three constituents come to see me. They all went to Holt Hill Convent School. They all were in the same class. They have all had two letters each, each letter contradicting the first letter. They have no idea what is really going to happen, and time has run out for them to make major adjustments, working longer, harder and so on and saving more. What moves have the Government been making to overcome that sort of confusion for women who already thought they would be retired and who are not retired?
Steve Webb: The first thing I would say is it is abundantly clear that there are a set of women—such as your constituents—who did not know. There is no question about that. Nobody is arguing about that. In fact, I know that, because when we wrote to them to tell them about the changes we made in the 2011 Act, which increased pension ages by up to 18 months, for some of them it was the first time they had heard about the 1995 Act, which increased their pension age by four and a half years or something like that. We got the flak for six years of pension rise. We had actually done, maximum, the last 18 months. I was determined in 2011, when we did the 2011 Act, to write directly first to those closest, the earliest, write personally and explain where they stood. Did we miss some people? Probably. When you move house, do you ring the DWP and tell them your new address? No. So I am sure we missed people. So if someone says, “I never got a letter,” they are probably telling the truth; I don’t dispute that. We did everything we could on the 2011 Act to tell the people affected by that Act.
There is an issue, though, because the big changes were under the 1995 Act, as you know, and I do not have access to the papers of my predecessors, as you know, Chair, but I have done a bit of digging since I wrote my note for the Committee and I have found what I think is quite an important document, which I will leave with you, which is research that the DWP did in 2004 called “Public Awareness of State Pension Age Equalisation.” What I have been trying to do is work out: clearly, there are a set of women who did not know. Are they typical or atypical? Was there a gross failure? Does nobody know, or actually is it just the way life is and a small number of people do not know?
What this research says is if you take the 1950s women in 2004, 75% knew. They knew things were changing and, therefore, might have enquired. Is 75% high or low? That is a judgment for you, I think, but that was five or 10 years before the changes for those women. What this research report says is there are groups who are less likely to know, so lower-income women were less likely to know and professional women were more likely to know. Clearly, this report 10 years ago says there were gaps, but it says there was a general level of awareness of about three-quarters, and I think that is the only objective evidence I have seen of how far people knew.
Q6 Chair: When you say you found it, Steve, was it ever published?
Steve Webb: Yes. It is on an archive on the internet. I had to trawl quite deeply for it. I guess there must have been some research of this sort and I managed to find it.
Chair: Great.
Q7 Mhairi Black: Carrying on from that, when it comes to the manner in which the Government are notifying the elector about certain changes, are the techniques of communication that are being used the right ones?
Steve Webb: It is a good question. I am very much of the view that because everybody is different, personalised communication is the key. We tried really hard to think what general messages we could get across, and essentially the message we got across is, “Things are changing. Find out.” There is no way you can have a general message that works for contracted-in and contracted-out men and women of different age cohorts and so on. The message has to be, “You can be told exactly where you personally stand. Here is how you do it.” When I was in office, we were working on digitising all of this. At the moment, what you do is you contact the Pension Service and in about a fortnight you get a personalised statement. We road-tested them before we issued them to make sure that they were understandable. There has been some feedback, so they have been changed. That is fine. You do that kind of thing. I gather next year this will all be digitised, it will all be online, and you will be able to go to a website, see your national insurance record and see how you stand. If we could have done that from day one that would have been great, but of course not everybody is on the internet. So I still think a personalised letter about your situation is the best thing, and I am pleased that half a million letters have gone out because that is almost equivalent to the number who retire next year. It is not all those people. A lot of people who are unsure have asked, but is there more that could be done? I am sure there is.
Q8 Mhairi Black: Do you think that people have been given sufficient time in terms of the changes?
Steve Webb: The 1995 Act itself, which did all the big changes, did not affect anyone for 15 years at minimum and 25 years at maximum, so it was a phased change. In theory, passing a law with 15 years’ notice ought to be absolutely fine. Of course, if people do not know you have passed the law that is the problem and that is what has happened. A minority, I think, did not know and have found out quite late. Partly they found out because of the letters we sent about the 2011 Act.
The 2011 Act gave some people relatively limited notice; I would accept that. The people who were affected in 2016 were generally those with quite small changes in their pension age. Those with bigger changes were a bit further away, but it was quite tight. I did lobby within Government. I tried to persuade the Prime Minister and the Chancellor to let us do it more gradually. I was not successful. We got £1 billion of concession out of them but no more. I would have liked to have done it more gradually if I could.
Q9 Mhairi Black: One more question that is slightly off-topic. Do you think there should be more use of interactive online calculators for people, given the more focused action of digital?
Steve Webb: Absolutely, and that is coming. At the moment, your national insurance record is a bit of a mystery, and you ring someone up and they send you a letter, then if you say, “I want to fill some gaps. What if I do this?” you write them another letter. It is just terrible. That is being digitised, a bit more slowly than I would want. I understand that next year you will be able to do exactly what you describe: see your national insurance record online and do, “What if?” There is huge potential for paying voluntary national insurance, boosting your record, and just to be able to see a webpage, “If I did this, what would I get?”—that would be brilliant and that is where Government is heading, just never quick enough.
Q10 Steve McCabe: Inevitably, with any system, there are going to be some losers when it comes in next year. Does the Department know exactly who these losers are?
Steve Webb: Pretty much, yes. A lot of analysis was done because we iterated. As we went through, we had to get the policy to cost no money net, we wanted to achieve the starting level of £150-odd clear of the means test, we wanted to benefit women and self-employed, so you pull all the different levers, and we did lots and lots of gainers and losers analysis. Broadly speaking, if I did gainers and losers, the gainers principally are older women who get better crediting for time bringing up kids—when I say “older”, I am saying closer to pension age—self-employed and some low earners; the contracted-out, on average, gain and this is a source of much confusion. DWP has tables that show average gain by contracted-out and contracted-in status. The contracted-out generally gain because, post 2016, they can build a bigger State Pension. So on average, the contracted-in lose, and higher earners with long service tend to lose because it is a flat pension, not an earnings-related pension.
Q11 Steve McCabe: Broadly, the groups are older women, self-employed and low earners.
Steve Webb: Yes.
Q12 Steve McCabe: Will all of those people have been notified, or will they be notified, that they are likely to be losers under the new system?
Steve Webb: Those three groups are the gainers. The women and the self-employed are the gainers.
Steve McCabe: Sorry, the other way around. I am interested in the losers.
Steve Webb: Originally, we sent out letters saying, “This is what you would have got under the old system. This is what you would get under the new system. You will get the higher of those two numbers.” The feedback was that people found that quite confusing—“It is two numbers. Why are you telling me two numbers? I want one number.” So now the statements just give one number, and then we get accused of concealing. The way it works in 2016 is you get the higher of your amount under the old system and your amount under the new system. In a sense, apart from women with derived rights, which are a subgroup, you do not generally lose at the point of transition, but post 2016 you accrue less and that is where the loss comes in, and that is quite a complicated message to get across, to be honest.
Q13 Steve McCabe: If the Department knows the people who are going to lose out because there is a change that has been made, it is not that complicated to write and say, “You are a loser under this system,” is it? That is a basic message, don’t you think?
Steve Webb: I am trying to make a slightly different point, which is that the losses—which there are, because it costs nil overall; if someone gains, somebody loses—are mainly because, post 2016, if you go on working, say you are a man with £170 in the bank, you work for another year, you don’t get any more pension because you have already exceeded the flat rate, so you will be a loser. But we don’t know in 2015 that you are going to do another year’s work, so the losses are slightly hypothetical. They are real, but they are speculative. It is not like you can sit down and say, “We know for certain.” There are very few groups where we can say, “We know for certain you will lose.” That is the problem.
Q14 Steve McCabe: Do you think there is an argument, then, for some kind of ongoing targeting of people? Presumably, as the system moves on, you will have greater and greater information about what is happening. Is there an argument for some kind of ongoing updating or targeting so that people are getting information—I am not decrying what has gone before, but a one-off letter with a brown Government stamp on it!—is there an argument for more regular, ongoing communication?
Steve Webb: Absolutely, because what we want is financial engagement. We want people to think about their finances well before pension age. We want it to be just normal to know what you have built up in the State Pension so far, and that is what this digital website will enable people to do. I absolutely agree.
Q15 Steve McCabe: What about other methods? Quite often I see Government letters and, by the time I have got through the first paragraph, I am struggling to figure out what they are trying to say to me. There are other means nowadays. You can text people, which is used quite effectively in the health service for appointments. We talked about online communications. Are there any plans or would you suggest that it would be useful to try other approaches?
Steve Webb: Yes. You can’t text people personal data—you can just imagine the nightmare if you do that and you get a digit wrong or something like that. But you can create the facility for people to go on the website and get digital information. You could text people and say, “Why don’t you go to the website and find out?” There is plenty of potential for that. Given that Government Departments tend not to even know people’s postal addresses very reliably, the amount of mobile phone numbers and so on that they have is quite limited. But in the world we are moving to, I am sure this will be the norm.
Q16 Chair: When you were drawing up your plans of who is going to lose, Steve, did you put a paper to the Treasury saying in what form the transitional compensation might be paid?
Steve Webb: The Treasury were mainly interested in the headline totals, how many billions of pounds we would save or spend or whatever.
Chair: But the question, Steve?
Steve Webb: Yes, sorry. Therefore, we did not have long discussions with the Treasury about gainers and losers. What we tried to do when designing it is say the transitional protection, first of all, a special transitional protection for people who paid the married woman’s stamp, just a group who it would have been unfair to rip up history. Then the transitional protection, in the sense that in 2016—that was the transitional protection—you get the higher of your entitlement under the old and the new system, and then things move on from there. That was what we thought was the fairest transition, instead of just starting with a blank sheet of paper.
Q17 Chair: You did not put a paper up asking for further compensation, which was rejected?
Steve Webb: No.
Q18 Craig Mackinlay: Chairman, I am trying to identify an obvious loser. That would be someone who, say, started work at 20. The 35 years is done by 55, but they are then paying 10 or 12 years’ full national insurance, so those last 12 years of what could be quite hefty national insurance contributions have just gone into the sand. They are the loser, are they not?
Steve Webb: Yes. There is an element of that in the current system, in that you get a basic State Pension after 30 years currently, so any additional National Insurance you pay after 30 years does not buy you any additional basic State Pension, even now, but you might get some more State Earnings-Related Pension. So it is not a wholly new concept but, you are quite right, it is more pronounced.
Q19 Craig Williams: Thanks for that question. That takes me on to my question quite neatly because your successor, Baroness Altmann, said recently that aspects of the reforms had been miscommunicated in the past, and agreed that the new State Pension has been mis-sold. Was the flat rate message oversimplified or was it overemphasised, especially given what we have been talking about—that the majority of people will not get that flat rate? Do you agree with your successor on that point?
Steve Webb: Oddly enough, no. At the risk of a very short anecdote, when I ceased to be an MP I wondered what my legacy would be, and I Googled my name, which is never a good idea, expecting stuff about pension reform, and all I got was Lamborghinis. The reason was that in an interview an interviewer said to me, “What about the Lamborghini set?” and I mentioned Lamborghinis in the answer.
The relevance of this is that Ros Altmann I think was asked, “Do you think the new State Pension has been mis-sold?” I don’t think she woke up in the morning thinking, “I am going to announce to the world it has been mis-sold.” I think the seed was sown, shall we say. I don’t think it was mis-sold. I do think it is incredibly difficult to communicate any measure of detail beyond the headline. The basic thing is we are moving towards a flat rate pension, and we are, and anyone in their 20s, 30s and 40s is more likely to get the flat rate than not. As soon as you say to a journalist, “Oh, yes, contracting out” you have lost them, and then you do not communicate anything at all, so it is always a balance. Of course there is a risk of oversimplifying. It may be I oversimplified, but if we had not simplified the message, we would not have got a message across at all and nobody would have known anything was coming. That was the challenge. As I have said, everybody is different. The system affects everybody differently. Perhaps we oversimplified but I don’t think, in a dishonest way.
Q20 Heidi Allen: I feel like I understand more about pensions now after the last 15 minutes than I have done in my life to date. You are incredibly clear, so thank you.
Steve Webb: Thank you.
Q21 Heidi Allen: Maybe you can help me understand probably the most difficult conversation I have with constituents, and people still tweet me about it: our ladies who were born between 1951 and 1953.
Steve Webb: Yes.
Heidi Allen: I think in your written evidence you used the phrase that you “sympathised” with them, but again, is it this misunderstanding? Could you help us understand? Are they right to feel the way they do? What can we do to help them improve their options, and what is the best way of doing that?
Steve Webb: First of all, let us take the middle of that group, April 1952. If I was born in 1952 and my pension age was going to be 62 and I thought it was 60, and I only found out six months before, I would be furious. Of course there are a set of people about whom that is clearly true, and that is why I absolutely sympathise with them. They present as though they are uniquely unfairly treated, and in fact unfairness obviously depends on whom you compare yourself with. Actually, I think there are other groups who might have a greater claim to feeling aggrieved.
I have three groups. They are a metaphorical younger sister, a metaphorical older sister and their male twin. Those are the three groups. Their younger sister will not get a pension at 62. She might get a pension at 66. Just a few years younger, she gets a pension years later. If you are talking aggrieved groups, surely the younger sisters of the 1951-1953 women ought to be more aggrieved. Their older sisters, who retired before 2010, needed 39 years to get a basic pension; this group needed 30. Actually, there are many pre-April 2010 women who are angry that they were not just post that cut-off. Baroness Hollis has an amendment in the Lords to do a transitional scheme because of an unfair cut-off. Every time you change, every time you have a date, there is a group the other side of it. That is not to diminish their concerns. It is just to say there are whole lot of other groups that have all been affected adversely in different ways.
The real gripe I think they have is, “If I was a man, I would be getting the new State Pension.” I think there are two issues here. Yes, you would be getting the new State Pension, but on average you would be getting it three years later. If I take my 1952 April woman, if she was a man, she would be getting it at 65, not 62. That is three years of pension that she will get that he does not. If she just has a basic pension of £115 a week, that is £5,000-odd a year, that is 15,000 quid in pension she will have before he starts. Who is the aggrieved one here, the man or the woman? It is, first of all, three years’ difference. However, it is true, the new State Pension on average is slightly better for this group of women than the old one, but not as much as they think, because a lot of these women are saying, “I get £115. If it was the new State Pension, I would get £150-odd,” but they would not, because if they are getting £115 because they were contracted out, they would not get £155 anyway, or if they have an incomplete contribution record they would not get it. That is why I comment that—
Heidi Allen: It is the utopia that people compare themselves to, isn’t it?
Steve Webb: Yes. There is a set of women who, if they were men born on the same day, would get more; that is clearly true. In terms of your question, “What can we do?” the one thing they can do is defer. The deferral rules under the system they are under are far, far more generous than under the new one, so you would get 10.4% a year for deferring. If there is no investment out there and you are not buying to let or whatever, you can get 10% returns on it. So for the women who have not yet taken their State Pension, if they want to be treated the same as a man and get a pension at 65, they could defer to 65, get 10% extra a year, and possibly get more than the flat rate. Not everyone can afford to do that, of course, but the men don’t have that option; they just have to wait until 65. I can absolutely understand why those women are aggrieved, but there are other groups who I think arguably should be more aggrieved.
Q22 Heidi Allen: How have we communicated this option to these women that they could do this?
Steve Webb: The deferral point not at all, I would think. The 1951 to 1953 women, as you understand, the last Government did not change their State Pension age at all, period. We did not write to them because we did not actually change anything for them. The 1995 Act changed their pension age. Deferral is one of these obscure corners of the pension system that not many people know about. You can actually unretire.
Heidi Allen: I shall tell my husband that. He will be so pleased.
Steve Webb: If you are a 1951 woman who has started drawing her State Pension, she could stop and get 10% a year deferral if she can afford to do so. That is an option but it is complicated stuff, I accept.
Q23 Heidi Allen: Given that that could well be, for those that can, a real opportunity, what would your recommendations be in terms of how we communicate that to these women?
Steve Webb: That would be well worth communicating. I seem to vaguely recall we got a lot of letters on this subject. I don’t think, if I am honest, every reply did mention deferral.
Heidi Allen: No, and that is the heart of it.
Steve Webb: Yes, and that could well be an option. It tends to make people angry when you say that because they say, “I can’t afford to give up my pension or wait for my pension; that’s why I am angry, so don’t you tell me to give up my pension and defer.” So it doesn’t always help.
Heidi Allen: It is an option.
Steve Webb: Yes.
Heidi Allen: Thank you.
Q24 Jeremy Quin: Steve, I had reams of questions, all of which you have tackled already. Thank you for that. Perhaps a more open one and a little bit of recapping. You view it as entirely fair that we are done with contracting out—may we have a little bit of explanation around that? Also the fairness around those with guaranteed minimum pension rights, given the abolition of the additional State Pension. Both go to issues of fairness.
Steve Webb: On contracting out, I would encourage the Committee to ask the Department for a table of gainers and losers by contracted-out and contracted-in. I happen to know what that table will show. It will show contracted-out on average are gainers. The reason they are gainers is: imagine you have been, say, a teacher all your life, contracted out forever. All you have is a basic pension of £115. In the new rules, post 2016, every year you work increases that £115 towards the flat rate. Without these reforms you could never have got a State Pension more than £115 because you were not in the second bit. Over time, people who were contracted out can burn off these deductions and build a bigger State Pension on top of their teacher’s pension, which will not be reduced at all. So the contracted-out in general are gainers from these reforms. They don’t perceive it because they say, “He is getting a flat rate and I am not,” but I am getting the lower rate plus my teacher’s pension, and now I will get a better State Pension plus my teacher’s pension.
The guaranteed minimum pension: the issue there is that you are contracted out, you have a guaranteed minimum pension and, if that was not indexed, the state would pick up the balance of the indexation. That is what used to happen. It does not happen under the new system because there is no second pension and all the rest of it. However, on the flip side, the triple lock applies to the £155, not the £115. The indexation of the first £40 of effectively what would have been additional pension is now triple-locked—earnings, prices or 2.5%—not CPI’d, which is what the GMP bits used to be. Basically, there are a set of people with GMPs who gain—small GMPs because they will get triple lock on the next £40-odd—and people with huge GMPs will probably lose. It is horribly complicated, which is why we got rid of them.
Q25 Jeremy Quin: Are there any other useful charts that we could get on the latter point, as well as the first?
Steve Webb: That is what I was asked for.
Q26 Chair: Jeremy, may I just interrupt? Steve, we will make that request to the Department. If they cannot find that, might we ask you for your copy?
Steve Webb: I have not retained any papers, I am afraid.
Chair: All right. Sorry. We might be able to trawl on the internet.
Steve Webb: Yes. There is a website somewhere.
Chair: Jeremy, sorry, I interrupted.
Jeremy Quin: No, that is great. That is a good answer, and we will certainly try to get hold of that chart. Thank you.
Q27 John Glen: Steve, could I ask you about the administrative arrangements? Obviously you left your post less than six months ago, and the Secretary of State—and I think across the industry generally—acknowledged the significant contribution you made in terms of planning all of this, to high acclaim.
Steve Webb: Thank you.
John Glen: In terms of the preparedness of the Department to make these calculations, I think in your written evidence you talk about a semi-manual process. How can we hold the Department’s feet to the fire with respect to the ongoing work since May on the preparedness to do accurate calculations, and what do you know that was in place at the point you left?
Steve Webb: I think I can be reasonably positive on that one. Just to explain my reference to semi-manual calculations, we get Royal Assent in May 2014. Immediately, people want to know where they stand. We get the folk who do the sums immediately for people within five years of pension age to do statements. It is not an automated process because we have not been doing it under the new rules before. There is an element of: you take some data off a computer, you do some manual processes and you send out a letter. That was the position 18 months ago.
By the time, for example, the pension freedoms came in, it was vital anybody 55 or over could get reliable State Pension information, so the process had been much more streamlined by then. It is pretty automated now. As I say, the fact they have sent out half a million statements suggests this is now an automated process, pretty much. I would like to place on record my appreciation of the people who do all of that work, who have slaved away to produce all that information.
The joy of next April is it is just a flow; whereas with the pension freedoms in April 2014 there was this big wall of people who were waiting to exercise their pension freedoms, in April it is just the people who turn pension age next April, so it is a trickle. It is just the normal inflow. So I have no doubt whatsoever that the right pensions will be paid on the right date. That is what the Department does. That is its bread and butter. I think that will all be fine, frankly.
Q28 John Glen: Further to that, in one of our earlier sessions we had evidence from the Minister, Harriett Baldwin, about pension dashboards and her hope that the industry would develop a sort of dashboard. It seems to me the integration of and understanding of what the state’s contribution would be to pension income and any private means, particularly in the context of auto-enrolment, would be desirable. Do you think there is any room for some coming together between the Government and the private sector in this regard?
Steve Webb: Absolutely. The one thing I was disappointed about was when it was said that Government would just stand back and let the industry do this. Industry clearly needs to work together, co-ordinate, get information in one place, but Government can integrate the State Pension information, which really ought to be there, can help to make sure there are common standards and vested interests do not get in the way. While Government’s record on IT is not blemish-free, it should not do it; Government could be an honest broker and bring people together. Government, I think, has a huge enabling role, and that is certainly what I would have done.
Q29 Richard Graham: Steve, it is very good to see you back. One of the things I think I would say if I was describing your time as Pensions Minister is that you were the architect of the triple lock. At a time when many pensioners had lost out in the years before 2010, this definitely made lives better for many millions of older people. But had you known what would happen to inflation, would you have altered the ingredients slightly? And if you were looking at this now—imagining you were still in your old role—would you consider intergenerational fairness and look at whether you could change not the concept of the triple lock but maybe the detail, for example the 2.5%?
Steve Webb: I think that is a very good question. A brief defence of the triple lock, if I may, because there is a bit of, “It is just a sop to the grey vote and it is terrible” and so on, but actually the triple lock is very important for women because, even with auto-enrolment and all the rest of it, the State Pension will remain the majority part of women’s income in retirement for decades to come. If we do not have a generously indexed State Pension, women will lose out particularly because, if you take time off to bring up a child, auto-enrolment stops. So whereas you might be credited into the state scheme, you are not getting an employer contribution and you are not contributing. If women on average spend more time out of the labour market than men, they will get smaller private pensions than men. On average, they will earn less than men, so they get smaller private pensions than men. So unless you use the State Pension to give a hefty wedge of basic income in retirement, it is women who will suffer. For me, the triple lock is crucial for women.
Q30 Chair: That is nothing to do with the triple lock, is it? That would be to have more great structural reforms to compensate women for the other roles they play in society other than working, but triple lock affects all of us, me included.
Steve Webb: It does, but proportionately it is far more important to women. There are other mechanisms, if they were available, but the consequence of the triple lock has been most significant proportionately for women.
Q31 Chair: Richard’s point is immensely important. Politically, it is always easier to sell something, why you have done it, if you say it helps women, and there are other ways of helping women directly for their disadvantages when they come to pension age, rather than giving us all a triple lock.
Steve Webb: On the specific question, the 2.5% dated back to the 75p issue. It was: if the inflation numbers point to 75p, how do we avoid 75p? That is where the 2.5% came from. Over time you could look at that element of the triple lock; I take that point. There is nothing magical about 2.5%. Having said that, for 30 years the pension was linked to prices, so we had 30 years of relative decline. We have only had six years of the triple lock, and I think the State Pension, on international standards, fell so much relative to earnings, personally I would keep the triple lock going in its present form for at least another decade. I think it needs that long to get it to a credible level.
Q32 Steve McCabe: If we follow Richard’s argument about changing the ingredients, not the principle, how much would you take it down from 2.5% before you would be back in your 75p scenario?
Steve Webb: Obviously, as the nominal value of the State Pension rises—it is £155 or whatever—even 1% is about £1.55. Having said that, I have gone on radio saying, “Isn’t it great that we are putting the pension up by £2.85? Hurrah!” and people say, “Yes, you probably spent that on a cup of coffee this morning, didn’t you?” It takes a lot not to look like an insultingly small amount of money, but no, there is nothing magical about 2.5% per se.
Q33 Chair: To conclude, Steve, now you can help me with a puzzle. I want to understand your political success in getting this basic State Pension in. You were faced by a Chancellor who was beginning a journey of massive cuts in public expenditure, of which we will get the full force this afternoon. You were reducing the number of years people have to pay in for a higher pension, which you triple-locked, and many more of us were going to qualify. How did you get that past him? Did he not understand what you were on about? You have massively pushed up the bill at a time when he was trying to reduce public expenditure. I hope we can all learn, should we ever be in that position. What was the magic you cast over him?
Steve Webb: To be clear, in terms of the new State Pension, we have not massively increased the bill; we have cut it. For the next 20 or 30 years, the spend is within 1% of what it would have been, but in the middle of the century we are spending half a percent of GDP less because SERPS would have ballooned, and we are not doing that. So we have taken out very long-term cost pressures for new pensioners. For today’s pensioners, it was in the coalition agreement in 2010 and so on, so I would make the distinction between today’s pensioners and tomorrow’s. For tomorrow’s, we have taken cost pressure out. Ending of contracting out brings billions of national insurance revenues forward, which may have helped us smooth the path; I don’t know. I think just the fairness argument was crucial, personally.
Q34 Chair: There is lots there, but let me leave it. We are short of time. When you did the major reform that you have done, which is to get a minimum pension in, which will lift people free of most means-testing, did you say to the Chancellor, “Of course, this changes the whole debate about pension subsidies, tax concessions for those who are saving above it?” We have built, over 100 years, subsidies, because people never believed we could get a State Pension at that minimum. We have piled all sorts of money in to get people to do additional savings. My view is the job of the state is to get people to the minimum. It is not to get them higher. If they want to do that, they should do it, but we should not rig the savings market to make them do it in one way. Did that come up in your discussions at all with the Chancellor?
Steve Webb: It didn’t. The Secretary of State was trying to make it pay to work through universal credit. We were trying to make it pay to save through the new State Pension. In a sense, that was the narrative: if you do the right thing, you get rewarded rather than penalised. That was the way we sold it.
Chair: Brilliant. Thanks a lot for the contribution, Steve. Have a search for those tables for us, please.
Examination of Witnesses
Witnesses: Paul Lewis, financial journalist and presenter of “Money Box”, BBC Radio 4, and Sally West, Strategy Adviser, Income and Poverty, Age UK, gave evidence.
Q35 Chair: Sally, could you and then Paul identify yourselves for the sake of the record?
Sally West: I am Sally West, and I am Strategy Adviser at Age UK.
Paul Lewis: I am Paul Lewis. I am a freelance financial journalist and perhaps best known to present “Money Box” on Radio 4, but I am not here for, with or by the BBC.
Q36 Chair: Great. Was there anything that the person who had been Minister said that knocked you sideways, Sally?
Sally West: I thought that I very much support what Steve Webb said about the importance of a personalised statement and the key communications message being to people, “The system is changing and you should get a statement.” I think that is important.
One of the problems is that the key message that people have picked up, perhaps from the media and also maybe from politicians, has been, “We have a new, simple system. Everybody will get £155 or whatever,” and they have come away with an impression that the system is very good and more generous for everybody. I like the point about maybe telling people, “You could be a loser,” and in a sense it is very difficult for Government to put over the message that it is a simpler system but it will take some time, and certainly in the short term, in the early years, there will be losers as well as gainers and it won’t be quite as simple as you might think.
Paul Lewis: I think Steve was right to identify the fact that there will be gainers, self-employed people particularly, and indeed some women, but raising the contributions needed for a full pension will disadvantage women. Even in the very long term, even by the 2050s—when probably most of us in this room will not care too much—15% of women will not get the full flat rate because of the lack of contributions compared with 10% of men.
In the early years particularly, figures that I got out of the DWP through an FOI indicate that in the first year, out of 90,000 women reaching State Pension age, only 20,000 will get the full flat rate; 70,000 will get less, and almost all of those will get exactly what they get now. I think this will be a difficult thing because, as Sally has said, people are led to believe there is a new State Pension which will be—I think the Chancellor is going to say it will be £155.65 this afternoon—and they are going to get less than that. We are told it is a single tier. There are going to be a bale of tiers in 2016-17.
Q37 Chair: I thought we saw the qualities that Steve showed at the Dispatch Box in the Commons, where he dominated this topic, and the message he put over today was one of, “It is already going quite well.” In my constituency, with the clock ticking to when the rule changes come in, I have women who have no idea and no certainty on what they are going to get, and I wonder from your experience whether that is typical. They have had more than one letter, maybe two, maybe three letters, all telling them different things about what their pension status will be. From your angle, is that a message you are strongly getting from women who are affected by this change?
Sally West: Are you talking about the State Pension age, the single tier or both elements?
Chair: Yes, I am. Yes.
Sally West: The State Pension age in particular?
Chair: Yes.
Sally West: Yes. I think this is an area that has caused a lot of concern. Women born in the 1950s have been affected by a range of changes to the State Pension, some good, some bad, but the rise in State Pension age is something that has caused people many concerns. As was said earlier, people did not get notice that their State Pension was going up. I agree with Steve Webb that it was during the passage of the 2011 Pensions Act, which increased the State Pension further, when people first discovered that their State Pension was not going to be 60. They had expected to get their State Pension at 60 all their lives, so a lot of people did not ask what their pension age would be because they thought they knew it.
I am interested to see the research about only 25% of people in, I think, 2004 not knowing their State Pension age was rising. We did some polling in 2011 at the height of publicity around State Pension age changes, and again we found that most people had some awareness of the increase in State Pension age but there were still a fifth of women who did not know. Even if that is a minority, it is really important, because the people who are most reliant on their State Pension are often the people who perhaps are carers, perhaps have ill health, and perhaps don’t have the time or the ability to find out what their State Pension will be. I think it is an ongoing concern and it would be important to check now that people are aware.
Q38 Chair: Before we go to Richard, because it will pick up on this theme, is that your impression as well, Paul?
Paul Lewis: Yes. It is one of the biggest issues I have ever had both on my Twitter feed and by email, and it is women born from April 1951 right up to 1959 who say they got no notice or very little notice. Again, I got some figures, or women in fact got the figures from the DWP, and the average notice they got of the fact they were not getting the pension at 60 was about two and a half years. When they were 57 or 58, they were written to and told it was going to be, in some cases, 66. Some of those who would have to work until 66 only got two and a half years’ notice. I say they were written to; many of them tell me they did not get the letter. I had a tweet just this morning. “I have never been informed of any increased pension age”, says Carol. “My date of birth, 20 December 1953.”
I have done some brief research on this, Chairman, and a well-known mailing company—I am not going to say who it is—that is publishing research shortly, told me that 23% of unchecked names and addresses were faulty. That does not mean the letters will not arrive, but it means they have a lower chance of arriving. If you are Jane Smith, there are many Jane Smiths. There are 1,000 Paul Lewises in the United Kingdom. You might get the wrong person. You might make a little mistake in the address. When women tell me they never had the letter, I believe them because a lot of these letters would never have arrived. So not only did they not get a lot of notice—they are supposed to have 10 years under current Government practice—they did not even get two and a half years because they never got a letter, and they found out through Twitter, through friends, through relatives and through the media.
Q39 Richard Graham: Paul, can I just start with you then on that issue? Your programme does a fantastic service. It is pretty compulsive listening and it achieves what most people in the financial sector really struggle with, which is to bring complex subjects alive fairly simply. On this particular issue, do you think there is an element of, whatever the Government had done, there were bound to have been losers, and, as the former Minister explained, you can argue there are worse losers who are slightly older or younger and that, whatever change had been made, there would inevitably have been some people who lost out? Therefore, is the issue not to some extent about trying to communicate what is going to happen and when and encouraging people to understand the facts and get on with it, rather than focusing on what they regard as an unfairness?
Paul Lewis: Thank you for your remarks about the programme. This is an issue we have covered. The group I am talking about are in fact the group that Steve Webb identified as one of the bigger losers: the women who got very little notice of a bigger rise in their pension age, in some cases to 66. It is true that if you are 40—as the women who are affected were in 1995—and you get a letter from the Department for Work and Pensions, the chances of you reading it and saving it in a file that will be preserved until 2010 are probably quite small. But I think at a later date, the Government could have done more. When they wrote to women from 2009 onwards, if letters were returned, they should have made more effort to make sure that person had been informed. I think the letter should have begun, “Beware: your pension age is rising and you will have to make provision until you are 62”—or 63 or 64. So I think communications could have been better.
You are right in two things. First of all, there will always be some losers, and secondly, the communications I think were very poor. I think it is the communications. When I talk to these women, which I have done many times over the last couple of months, they all say, “Yes, of course State Pension had to rise. We all accept it had to rise. We would just have liked more notice so we could prepare.” Suddenly, at 60, 61 or 62, they find they have another three or four years with no money.
Q40 Richard Graham: Very briefly, on that question of more notice, do you think that to some extent—and I am not trying to point a finger at all—the problem was that this had not been done earlier?
Paul Lewis: No, I don’t think that. I think communication could have been done earlier. If you look back to 1995, the then Conservative Government put it off for a year because they were too afraid of the political consequences of telling women this was going to happen. When they did it, they then did not tell anyone because, again, I don’t think they wanted the consequences. I did a brief press cuttings search, and there was almost no coverage in the press—tiny bits at the back of the business pages. Nothing major. I think that is probably also true of “Money Box”, but I couldn’t say.
Q41 Richard Graham: Some might argue that communication could have been done between 1997 and 2010. You have to accept that point.
Paul Lewis: Absolutely. Yes, it could.
Q42 Richard Graham: Sally, could I just turn to you? In terms of the role of Age UK and the communication and facts of these complex subjects, there is a case out there at the moment that what is really needed on guidance is not just guidance for the over-50s and people with a DC pension, which is what Pension Wise now provides, but something much broader for almost everybody, in an ideal world, at possibly an earlier stage, about the whole business of preparing for later life and financial adequacy. What does Age UK feel about this and what sort of role do you think you could play in helping to communicate and explain to your customers and the ageing what goes on?
Sally West: Yes. I definitely think there is an important role for information, guidance and support on all aspects relating to financial matters throughout life. We are quite keen on the idea of a midlife planner, which has been carried out in some way, that looks at your job and your future and your pensions, but it needs to be not just a one-off process. It is the pre-retirement process, the at-retirement, and then indeed during retirement, reviewing your financial situation. There are a range of organisations and sources of information. Pension Wise looks specifically at the pension freedoms. There is the Pensions Advisory Service, which has a very good role in giving information about all kinds of pensions, particularly private pensions, and also involved in running Pension Wise. We produce a lot of information and we do various one-to-one information and advice at a local level. Perhaps people of 40 or so would not necessarily feel Age UK was an organisation to come to. We would focus a bit more on the coming up to retirement, at retirement and—
Q43 Richard Graham: You could have a youth wing or something. What do you think is the biggest communication challenge at the moment about the whole issue of pensions and savings, and is it being covered effectively?
Sally West: For individuals, there is an awful lot of change going around in both State Pensions and private pensions. Sometimes when I have talked to people and said, “Do you know about the new single tier, the new State Pension?” they say, “Oh, do you mean what George Osborne said about being able to draw your pension?” People do not necessarily see things in boxes in your State Pension and your private pension, and there is a big campaign going on on automatic enrolment. We have Workie telling people. Everybody knows about that because that has been a high-profile campaign. I think it is looking at how we join up campaigns, but also messages. For example, if any Government Department is writing about your national insurance or one aspect of your pension, can we join up messages? For example, bringing in, “Have you checked your State Pension? Do you know that State Pension is changing?”
Richard Graham: Chairman, I think that is quite an interesting point for the Committee later on to consider—how communications now going on could maybe include others.
Chair: As you were listening to the end of the answer, Richard, John was saying there is a recommendation there for us. I think that is true. Yes, certainly.
Richard Graham: Possibly. Thank you.
Q44 Heidi Allen: So much of what we are hearing is about, “Yes, everybody knows it is changing, but there are all these different disfranchised groups. There are misunderstandings. It is the whole comms.” If you two had a blank piece of paper and were advising the Government now, here, today, how to improve the situation and how to communicate while there is still a bit of time left, what would be on that piece of paper?
Sally West: For me, the first thing is the individual communications, particularly in terms of people who are likely to get less under the new system, and those who could do something about it. You heard earlier in the session with Steve Webb about some of the groups who will do less well under the new system. Steve briefly mentioned derived rights, which is a group that we are concerned about. These are people—men and women but particularly women—who, under the current system, could rely on their partner’s contributions for a pension, and that is a big change that is happening without much in the way of transition. We have heard from some people—and I am sure there are many others who do not yet know—that perhaps if they are widowed in the future they may not able to rely on their husband’s contributions.
Groups in that situation, people who have gaps in their contribution record, need to know that as soon as possible because in some cases, they may be able to make other plans. I think there are other groups who will be perhaps getting less in the future, so again talking about the abolition of the additional pension: people who were expecting their GMP, their guaranteed minimum pension, to be uprated in effect for the additional pension. There may not be a huge amount that people can do, and they may not be making specific plans, but there needs to be some detailed information to individuals and providers to explain that.
Q45 Heidi Allen: You would say individual pieces of correspondence, so writing to individuals? I think one of you used the phrase earlier, “There should have been more effort and more could have been done”—in response to bounced-back letters, that sort of thing—so is that what you are saying: individual letters to the people who will be worse off, essentially?
Sally West: I think you need to be doing the promotion and the general communication to inform people there is a change, get a statement, but I think—
Q46 Heidi Allen: We are doing that, though, aren’t we? What I am trying to get at is what can we do better?
Sally West: My biggest concern is people that are going to be less well-off under the new system but may not know it and may not know there is something that they can do about it, so looking at where people have incomplete records and whether they could be contacted directly.
Paul Lewis: Two things. First of all, Steve Webb mentioned this proposed computer system where we can log on and look at our national insurance record and do what-ifs. He sounded—forgive me, Steve—a bit more like a Minister than a non-Minister then because he seemed to think it is going to work and be very easy. I don’t share that view. I think that it will be very complicated and it may give you the wrong answer because the rules are so complicated. If we had a system that did that, it would be ideal because, as Sally said, the big thing to explain to people is: if you have a certain amount, can you boost it? Is it worth buying past contributions? Is it worth buying contributions from 2016? For many people it will be, of course if you are of the right age to do so. But working out what you will get for what is going to be the complicated thing. That does need a computer programme.
I hope that Steve is right and that this system will work and will be simple, but when we talk about computer systems we have to remember that the ONS says 14% of households in Great Britain do not have access to a computer and the internet. What are you going to do about them? That is probably more likely the older you are. I don’t know about the people approaching retirement. Whenever people say that over-65s can’t use computers I always feel deeply upset but it is perhaps more a feature, and of course people in rural areas don’t have broadband. It is not just the internet you need; it is a good broadband connection. So the computer system will be good for those who use it but will not work for everybody.
I do think the Department should look at individual communication, perhaps even face-to-face communication—I know how expensive that can be—for explaining these options to people, but at least there should be a system that journalists like me can refer people to. We can now say, “Get your pension statement. It may not be that easy to understand but you can get it.” If we can also say, “Log on here, do some what-ifs, find out” then, whether it is you or a relative or a friend who does that for you, you can at least establish accurately your position. You have a very complicated system and a quite complicated system, and where the two are meeting it is really almost unintelligible. It is that boundary. The 20 years of transition we are going to have are the 20 years when this has got to be sorted out.
Q47 Steve McCabe: I want to ask a question about derived rights. You referred to the group of people who benefited from that previously. I wonder what is so wrong with derived rights. The Government seem to be extolling that elsewhere—married couples allowance, shared parental leave, profits and sales as regards capital gains tax, transfer of inheritance tax allowance. Why, when it comes to pension contributions, are derived rights such a terrible thing?
Sally West: I am not sure that that is really one for me; it is possibly for the previous witness. We fully recognise the importance of everybody building up their own contribution record. It is important that women have their own pension rights and they have these very positive changes to that. In a sense, we do not have a problem, necessarily, with the policy of expecting people to have their own pension rights. The concern for us is that it is a change with very little notice. Even if you have been studying the Green Papers and the White Papers, you will only have had a few years’ notice of a change and many people will not yet know. Again, I think it is a matter of notice and we certainly believe there should have been longer before any change was introduced.
Paul Lewis: I just say it is expensive. It is going to save a lot of money. Steve Webb has made it perfectly clear he had to do this at nil cost and that meant a lot of nice little things disappeared. Most of the problems that we are dealing with are because things have disappeared that would have been nice to have but they would have cost money.
Q48 Steve McCabe: But presumably derived rights are expensive in every other area I have mentioned as well.
Paul Lewis: Yes, but because you are trying to do the new system at the same cost as the old system, or in fact slightly less, you have to get rid of things because some aspects of the new system are more expensive. That was one of the things that went. Just as the Chairman said, if you say it helps women you will always get it through. This helps equality because women have to stand on their own two feet, even though they live in a relatively unequal society. Many of them at the moment still find that if they do not have quite enough to get 60% of the State Pension, they can get it anyway from their spouse, husband or civil partner. That is going, and the women we were talking about earlier who feel that they are not going to get their pension for many years have said to me, “We are not even going to get a category B pension, as it is called, from our husbands because those are scrapped from April 2016.” But I would say it was cost; that would be my view.
Q49 John Glen: Clearly this subject is incredibly complicated. Paul, different Governments have made different decisions at different times and having consistency in communications has been one of the challenges, but you seem to be saying, in answer to Heidi, that you would wish to see greater clarity in the communications and the website. There are lots of options in terms of deferring and complexity. Isn’t there a danger that you could create something that apparently points to solutions but without clear individual advice would end up being quite misleading? Isn’t the real answer that there needs to be a greater collaboration between the private sector and the Government on this dashboard concept, which brings together some of the auto-enrol workplace pensions with this, and they also need to work out how to compel people to get a certain level of advice? You could end up having something that superficially addresses your communications concerns that pushes people down the wrong route.
Paul Lewis: I can see the danger you are pointing to. The only answer is to have a team of individual financial advisers, who do far more than regulated financial advisers do because they understand the ins and outs of the State Pension, who would go and see everybody, and that is just not going to happen. A computerised system can work and I believe it can be confined to the State Pension because boosting your State Pension will always leave you better off. You might lose a bit of Housing Benefit or Council Tax support, but the pension credit issue has been resolved by the new level for the new State Pension that is higher than the guaranteed level of pension credit.
I think that it could be a standalone thing and it could say, as the Pension Wise website does, “Now you should check this or that or the other,” but I don’t see a problem with the DWP having its own standalone software that enables you to work things out. I also think gov.uk could work more. It is very good as a general overview but you cannot dig down. You cannot go, “Okay, I have understood that. I want to know a bit more about this” and it takes you to another page that is at an equal level of generality. You need to be able to go down to, if you want it, a 16 or 32-page document that will set things out. I think gov.uk could be improved but, as I say, computer-based systems will not help everybody and you have to have some way of helping them in other ways. That would be very expensive, and clear communication from the Department would be a start on that.
Q50 Richard Graham: This is an interesting point. One of the misconceptions out there is that the guidance provided by Pension Wise, by people like TPAS, if you give them a ring is very generic and rather waffly and, therefore, not very useful. Actually, for any of us who have tried it as mystery shoppers, the degree of guidance you can get from people like TPAS is incredibly helpful in focusing the mind on what decisions you have to make, which is the biggest part of the challenge. Are you in favour of an idea that, for example, might provide an opportunity for anyone to have, effectively, that free telephone conversation with an organisation like TPAS at whatever stage of life you choose it to be? Would that help deal with your rightful concern that there are some people, and particularly the older ones, who are not going to be able to handle more sophisticated software on a computer?
Paul Lewis: Yes, but I think TPAS would have to have that DWP system that we are still waiting for so that they could do it. I agree with you about TPAS; I think the advice it gives is excellent. Despite the fact that Pension Wise is very constrained by Treasury rules about what they can say, TPAS gives excellent advice. What they don’t have, though, is that computer to say, “Age, national insurance number”, pull up the records and explain to you the choices. They explain them in a general way but that may well leave you not knowing what to do. Yes, I think Pension Wise has been a success, but let’s not forget, only one in 10 of the people who have taken advantage of the pension freedoms have actually had any advice from the free advice services and probably fewer than that from paid advice services.
Richard Graham: There is a marketing challenge. Maybe your programme can help spread the word on that.
Q51 Heidi Allen: Paul, you just touched on the fact that there is limited money—we do not have an inexhaustible budget for marketing—and, given the importance of the approach of communicating individually with people, would you put that at a higher priority? If you were the one with the limited purse strings, would you abandon some of the generic messaging that is going out there and concentrate it more?
Paul Lewis: People not in Government never imagine they have limited purse strings; you should know. I would give Age UK a big grant, give them the advertising budget and let them do the telephone and the face to face. I am not just saying that because Sally is here. I think there are individual organisations who could do that better. Advertising is a way of covering the Government’s back. They say, “Well, we advertised that. You didn’t take any notice.” Of course you don’t; you don’t take notice of adverts. But personalised individual advice is what people need and that is very hard to afford, but I think Pension Wise, TPAS, Age UK and Citizens Advice could all be given a budget—and it would not be billions, we are talking millions not billions, which is margins of error for the Treasury—to help do that and I think that would be very good. Sally is going to say she accepts the money.
Sally West: I will discuss with colleagues as to how much we would like you to recommend.
Q52 Mhairi Black: To go back to something that you touched on earlier, Sally, when it comes to pensions quite often the general public are not experts and are not totally clear as to whether they are talking about private pensions or state pensions or whatever. Given that one of the key characteristics of the new State Pension is that it is to work alongside increased pension provision from workplace pensions, how can this sort of combination be made clearer to people—that there are two separate things that work together?
Sally West: I suppose it is about joining up messages, so working with employers and pension providers, if it would be possible when people get their annual pension statement from the private providers to also highlight, “Have you checked for a State Pension statement?” It is trying to look at whether you can bring in that message when people are already being contacted about something. I was speaking to somebody who has a small business, employs a few people, and she was saying she was getting letters from HMRC about automatic enrolment for her employees. Again, maybe that is a place where you could say, “By the way, have you talked to your employees? Have you told them there is a new State Pension and this is how you can get a statement?” Large companies have HR departments and will be more able to do that general promotion. At Age UK we do pre-retirement sessions for staff coming up to 55-plus and we can bring together all the aspects about retirement, State Pension, private pension. You cannot do that as a small organisation but you could perhaps pass on some of these messages, so maybe there are some ways that that could be done.
Q53 Mhairi Black: Is there anything that you would disagree with?
Paul Lewis: No, I don’t think there is, but one of the problems of the world we are in is that we all have to worry about and engage in pensions and 99% of us don’t want to. What we really want is a good final salary scheme but we don’t even know how much is going in but it is not very much, and we get that at 65 and it is okay. We want a State Pension that is simple; we get that at 60 or 65. That is what we want, but we are all being told to engage with our pensions, to worry about auto-enrolment: where is the money being invested? People don’t care. They want other people to do that for them. People are having to engage with a State Pension that has got hideously complicated and for the next 20 years, I am sorry to say, is going to be even more difficult to understand. Most people don’t want to. Some people would find it very difficult to engage and make decisions that would make them better off, and when they go to the financial services industry they are not always given the advice they should be.
Q54 Mhairi Black: Do you think there is a helpful prospect if, through workplace pensions, there was more signposting and more explanation as to how the new State Pension works and how it is going to affect you, so it is back and forth between not just the Government talking about workplace pension schemes but also the workplace educating about the new State Pension?
Paul Lewis: It is hard enough to get workplaces to give people full information about the auto-enrolment pension they are in or the company pension or the works pension. If you then say, “You also have to tell them about the State Pension,” you are talking about almost a different group of advisers, and I come back to the computer system. If they had a simple one, that would be very helpful. I think employers could do more but it is a cost on them. It might be okay if you are large employer with 30,000 employees but, over the next few years, auto-enrolment is going to extend to people who employ one person. They are not going to have the staff or the ability or the resources to do that.
Q55 Jeremy Quin: Paul, you made some very interesting observations on communications this morning, for which I thank you. Only 85% of over-65s have access to a computer but nearly 100% have access to the radio, so I trust everything is going to be well signposted in due course.
Paul Lewis: Sadly they don’t all listen to “Money Box.”
Jeremy Quin: I cannot believe that for a minute. Can I ask the two of you a slightly more prosaic question about, putting aside the communications, the actual delivery of the pension? As you mentioned, we are moving from one complex system to another complex system within the same cost envelope. Are you both comfortable that the Department will be able to get the right amount of State Pension to the right people in the right way?
Sally West: I am not sure that we are in a position to judge that. I have not heard anything to say that it won’t happen but I don’t think we have a way of knowing whether the administrative systems are ready.
Paul Lewis: I think one of the problems is that when they do get money to you, you have absolutely no way to check if it is correct. Even if you ask for calculations, the calculation is so obscure and difficult and depends on your earnings back to 1978 and what you did from 2002 onwards, it is impossible to check. You don’t even get the calculation, which I personally think you should do, but then I like numbers and spreadsheets and calculations. If you at least had a calculation to explain how that bottom-line figure was arrived at—and I know the move is to give you less options, just to give you one figure now—then I think that that would help. Given past experience with the Department on these very complex issues, and having struggled to even begin to understand schedule 1 of the Pensions Act 2014 that explains some of the transitional arrangements, I think it is possible that the Department will get them wrong. That is what I was saying about the computer system earlier; not only does it have to be there, it has to give you the right answer, and if it doesn’t the Department has to be liable for any losses.
Q56 Chair: When we had Steve a moment ago, I asked him how he managed that critical success of selling this big reform to the Treasury, and if I paraphrase his answer it was that he began by saying, “This will be at nil cost.” He then went into great detail so their eyes blurred over and at the end of the meeting they said, “Fine, no extra cost; do it.” Steve explained to us that in this package there are winners and losers. Is there one group you think is particularly hardest hit as a loser to help balance the budget so that Steve could sell the overall reform to the Treasury?
Paul Lewis: The trouble is that whoever we say, Chairman, the other nine losers will all start bombarding us with tweets and emails.
Q57 Chair: But is there a particular group?
Paul Lewis: I think women have still not been treated as well as they could be. If you look at the groups of losers, whether it is the derived rights, the dependant’s pension or the married woman’s pension, or the women who have had their pension age accelerated further away from them, or whether it is the people trying to get 35 years, I think every one of those things affects women. If you were to pick one of them—I would not like to pick one of them—they perhaps could be sold as helping women, although the chances of any significant change now seems small. It is mainly groups of women who have not been treated as well as they might and have borne the burden of the various cost-saving measures that Steve had to introduce to get this thing through.
Sally West: I would also add the bit that we have not said that much about, which is: the people who will not be in the new system. As you might imagine, at Age UK probably most people who have contacted us about it are already pensioners who will not get the new pension, including those women who are just below the age, the 1951 to 1953 group who Steve talked about who will not be in the pension system. I appreciate that it is a system that is going to cost the same, and indeed as we go forward will cost less, despite the triple lock. Even if that was maintained, it will cost less in the future. I understand the politics behind not wanting to increase it, but many older people who are managing on very low incomes now are looking at it and saying, “I wish I had £150 State Pension.”
Paul Lewis: One of the things that the last Government did, which I imagine the present Government will do, to save money was for the people who are just above the guarantee level of the pension credit, the people with savings credit. That was cut back and cut back, and I suspect it will be cut back more for existing pensions. Of course it disappears completely for those who reach pension age in 2016. That is a group of both men and women who are by no means well off. They are not the poorest; they are the second poorest. They have already paid a price and they will pay a further price from 2016. But I have not picked one group, Chairman, and I apologise for that. I didn’t answer your question.
Chair: If you want to submit it in a sealed envelope, anonymously, we would be very happy to receive it. Thank you both very much for the evidence. It was really helpful.
Oral evidence: Understanding the new State Pension, HC 550-i 21