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Pensions Bill

Amendment No. 33 proposes that we provide for a possible move to pay a basic state pension on the basis of residency at some time in the future, and Amendment No. 169 commences that provision once the Bill receives Royal Assent. I am not surprised to see these amendments tabled in the name of my noble friend Lady Hollis. She has been a tireless campaigner for the improvement of women’s pension outcomes, and I take this opportunity to thank her for her continuing involvement in the debate. She has made clear that she believes that a residency-based pension is the best way to ensure that women receive adequate state pension outcomes in the long term. Other noble Lords, including the noble Lord, Lord Oakeshott, in particular, have also expressed that view, so this amendment gives us a further opportunity to discuss the issue and, in doing so, to discuss how the Government’s reforms address that point. I remind the Committee of the proposals made by the Pensions Commission, led by the noble Lord, Lord Turner, on the future of the basic state pension. The commission proposed that a residency-based pension should be introduced on a forward accruals basis from 2010. However, the Pensions Commission believed that it would be hard, if not impossible, to apply a residency approach retrospectively, so proposed the introduction of a residence test for new accruals only, which the amendment acknowledges. In making the case for replacing the contributory system with a universal pension payable to all individuals who meet a residency test, the commission also acknowledged that there are important arguments against taking that approach. I start by making clear that the main objection toa residency approach is one of principle. The Government believe that pension entitlement should be a reward for a lifetime of paid work, parenting or caring—in short, providing something for something. Using residency as the basis of entitlement for a pension would provide the same reward regardless of the social or economic contribution made by an individual. Our reforms modernise the contributory principle so that it continues to be relevant, but it remains at the heart of this Government’s approach, and we believe that it strikes the right balance of rights and responsibilities between the individual and the state. Nevertheless, reform in the state pension system so that women and carers receive fair outcomes has been a key objective of our pension reforms. A residency-based pension is often supported on the grounds of this objective, the argument being that entitlement built on residency would produce fairer outcomes than paid or unpaid contributions that women may find harder to build up than men. However, a comparison of the approaches suggested by the Pensions Commission and the Government shows that our reforms will deliver improved outcomes for women and carers faster than they would be delivered by the introduction of a residency-based pension for new accruals from 2012. Our reforms will see the proportion of women reaching state pension age in 2012 with entitlement to a full basic state pension rise significantly to around three-quarters, compared to around half without reform. Most commentators have acknowledged and welcomed the significantly improved outcomes that will be delivered faster bythe Government’s reforms. However, supporters of residency still argue that it would be a fairer and more relevant way to determine state pension entitlement than a contributory system. There are some further key objections to this approach. A residency-based pension would not necessarily be simpler to administer, nor would it necessarily provide a more universal pension. There is no unequivocal definition or single set of rules used to determine residency. Different social security benefits have different definitions and rules, and different government departments operate specific rules to determine residency for specific purposes—for example, HMRC for tax collection. Therefore, we would first have to agree on a workable and fair definition of residency before determining what information might be relevant and finding a way to obtain it. We do not hold records on residence beyond those existing under the current tax and benefit system. Furthermore, we know that there are gaps in the coverage of the existing information systems, so we would have to identify additional information to help confirm and record residency. The DWP could not do that on its own, but would need to work with other departments and organisations. There are no residency records in the UK to underpin the policy of a residency-based basic state pension. We do not believe that there is any effective proxy for residency information. Arriving at a unified definition of residency and solving the problem of sharing information across these different rules and organisations would not be a simple matter. For example, would residency be based on physical presence? If so, what would be the position of individuals seconded to work abroad for their employer for a period? What about diplomats posted around the world, service personnel serving abroad for their country or individuals who wanted to work, say, in Africa under some voluntary service overseas? Would they have their pension restricted? What would be the circumstances of missionaries working abroad? The amendment is obviously intended to allow time for the consideration of these issues in order to move to a residency approach at some future date. But time would not necessarily deliver a solution to the problem of finding a workable definition of residency that delivered outcomes comparable with those under the proposed reform system. If information is to be managed for this purpose, we would need to know what would be the definition of residency and what information would be required to support this. We would need to legislate for this information to be collected for the specific purpose of defining the entitlement to the basic state pension on the basis of residency. The amendment would have no practical effect unless these provisions were decided. Ultimately, a residence-based approach to provide the state pension would require a new system or processes for collecting and recording information, yet we would still have to run the existing systems in parallel with any new system and continue to collect the information we already collect for current business requirements. A residency approach would not deliver a universal pension or something more closely resembling it than the system that would be delivered under our reforms. Such a residence-based system would still need a test for eligibility. Some people would fail this test. Too long a residency requirement could prove difficult for some to meet, while too short a test could compromise security and affordability. My noble friend made reference to the electoral register as a means of recording data for a residency pension. The electoral register has been suggested for the purpose. There are currently no residency records to support such an approach and no effective proxy for residents’ information. It is not clear that the data from the electoral register would meet this requirement. A number of legal issues arise when considering using this or other data sources for this purpose. Personal information, such as that on the register, may be supplied only so far as the law allows it to be supplied. Similarly, the department’s ability to retain and use information it obtains is prescribed by law. The amendment would require relevant data to be stored for the purpose of determining residency, but we would first need to have legislative gateways in place to collect this information for this specific use. In the case of data from the electoral register, there is no central register. Each local authority holds its own individual register. If this information were to be used, the Secretary of State would require a power to receive information from all 408 registers, and to be informed of any changes in the information held. Furthermore, the usefulness of this information is questionable in the case of the publicly available register because residents can opt out of providing their details, so it would not necessarily contain the details of everyone in the local area. The electoral register does not provide a unique identifier for individuals, so even if it could be matched against other data sources, it is not certain that the specific individual could be found and their identity and residence history confirmed. The register could contain the names of individuals, their gender and age, but only that. The key thing to remember is that the electoral register provides evidence of a person’s eligibility to vote, not of residence. It may indicate that somebody lives at a particular address, but it cannot be used on its own to confirm this or to tell us how long that individual has lived there. Indeed, one could be on the register for a period when the register is drawn up and then go and live in Bermuda for 10 months of the year. It would still not provide an adequate proxy for residence information. This debate will continue. I look forward to further opportunities to discuss the matter, but I do not believe that the amendment is the right way in which to go, and ask the noble Baroness to withdraw it.