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Pensions Bill

Earnings uprating was a key issue of discussion on the last Bill and is essential to the reforms to state pensions made in the Pensions Act 2007. The reforms already made, to which earnings uprating of the basic state pension is fundamental—we agree on that—will provide a more solid foundation on which to make private pension saving. I am not surprised, therefore, that this subject remains an area of interest in this Bill. The two amendments under discussion relate to earnings uprating and the annual review of the qualifying earnings band. Amendment No. 43A would tie the annual review of the qualifying earnings band set out in Clause 13 with the annual review of the basic state pension and other amounts once earnings uprating is introduced. Amendment No. 136 would ensure that earnings uprating of the basic state pension happened no later than April 2012, as we have heard. The amendments provide me with a further opportunity to set out the Government’s commitment on earnings uprating and how that will be carried out. My honourable friend the Minister of State for Pension Reform said in the other place: "““Let me put beyond doubt our commitment to reinstate the link. That is not just my guarantee; there is a legal obligation, and we will stick to it””.—[Official Report, Commons, 22/4/08; col. 1252.]" We have legislated to restore the earnings link to the basic state pension in the Pensions Act 2007. In fact, Section 5 was brought into force by Section 33 of that Act. During the next Parliament, we will link the uprating of the basic state pension to average earnings. Our objective, subject to affordability and the fiscal position, is to do that in 2012, but in any event by the end of the next Parliament at the latest. Let me make it clear: our aim is to restore the link in 2012. That timing strikes a balance between making reforms that are affordable in the long term and tackling the problems identified by the Pensions Commission. The commission’s view is that a short delay in introduction, from 2010 or 2011 as originally suggested, would not unduly affect outcomes or undermine the overall thrust of our reforms. The current arrangements allow for some flexibility on timing. If, for example, economic conditions prove uncertain, we have some flexibility to consider timing and affordability in light of the circumstances. That is nothing more than a sensible safeguard. Understandably, noble Lords, like many others, are keen to find out the timing of the earnings link as soon as possible. To that end, we will make an announcement, as we have said before, on the precise date at the beginning of the next Parliament. On the process for earnings uprating, Section 5 of the Pensions Act 2007 sets out the arrangements to be followed in determining whether pension amounts have retained their value in relation to the general level of earnings. That requirement and the subsequent arrangements for uprating these amounts will be carried out as part of the annual process for uprating pensions and benefits. Those arrangements were debated in depth during our consideration of the previous Bill. The amendments are not needed to strengthen the commitment on earnings uprating or the arrangements in place to carry it out. We have been clear in setting out our commitment on earnings uprating as part of a complementary package of reforms that follow the thrust of the Pensions Commission’s proposals to develop a solution for the future. Earnings uprating of the basic state pension will happen by the end of the next Parliament at the latest. However, our objective remains for the link to start in 2012 and we continue to plan on that basis. The noble Lords, Lord Oakeshott and Lord Kirkwood, suggested that we have not done anything to support pensioners since 1997, but our strategy since 1997 has been to target help on the poorest pensioners while providing a solid foundation of support for all. In fact, we are spending around £12 billion more on pensioners in 2008-09 than we would have been had the 1997 policy continued. Around half of that extra spending is going to the poorest third of pensioners. Today, no single pensioner has to get by on less than £124 a week, compared with just £69 in 1997, which is a rise of over a third in real terms. Pension credit has been upgraded in line with earnings since it was introduced in October 2003. In April 2008, it increased by more than earnings. Since 1996-97 all pensioners have seen similar rates of income growth. Net pension incomes have increased by 29 per cent since 1997 and all pensioners have seen similar rates of income growth. That is in contrast to 1996-97, when the incomes of the richest pensioners grew much faster than the incomes of the poorest. We have put in resources, particularly in seeking to protect the poorest pensioners. The noble Lord, Lord Skelmersdale, asked about the introduction of personal accounts in 2012. We debated that point last week. I confirmed that 2012 is still the year in which we are planning for their introduction. We have not given a precise date within that year, as there is clearly a great deal of work to be done. As we discussed, Tim Jones did an update on the timing and his report was put in the Libraries of both Houses. The noble Lord said that we had brought forward the flat rating of S2P. We have not. The changes that we are making via the National Insurance Contributions Bill are to make sure that the flat rating of S2P keeps on track to where it was designed to finish and to take place when the pensions proposals were put together. The noble Lord berated this Government for their borrowing, but I believe that this Government’s economic record bears strong comparison with that of their predecessor. My noble friend Lady Turner gave her support to linking the basic state pension with earnings as quickly as possible. I acknowledge that she has been a long-standing campaigner on this issue. We could debate endlessly the challenge that the economy faces and the Government’s record, of which I am proud. However, we do not need the amendments because we have already set down clearly in legislation our determination to relink the basic state pension with earnings. The amendments are unnecessary and I ask noble Lords not to press them.