§ 3C Where a person has accrued a right to a lump sum payment under paragraph 3A of this Schedule the value of the lump sum accrued by the time of death shall be payable to the estate of the deceased.""152GC
§ The noble Baroness said: Following on from our previous discussion, I want to rehearse and advance an argument put forcefully in another place by my colleague and honourable friend, Steve Webb. It turns on the issue of the deferment of state pensions and deals specifically with the case where a pensioner has decided to defer his retirement pension in order to be able to draw a lump sum at a later date, but who dies before that date is reached. In such a case, the pensioner's spouse will have a claim on the lump sum; that is, he or she should be able to choose to "inherit" either the lump sum or the increments based on the deceased's deferral entitlement. However, in order to be able to inherit the lump sum, the survivor must have been married to the deceased at the time of death, have reached pensionable age and have claimed his or her own pension.
§ Page 179 of the Explanatory Notes puts the word "inherit" in inverted commas, because apparently the Government believe that the accrued lump sum does not in itself constitute a property of the deceased person and therefore cannot be bequeathed to anyone. Therefore the possibility of inheriting any such lump sum seems to depend entirely on the generosity of the Government and is not something on which the deceased's heirs would have an independent claim.
§ My colleague in another place argued the point about equality, saying that allowing only married partners to inherit lump sums was likely to represent discrimination. It would also make it less attractive for unmarried pensioners, of whom there are many, to defer their retirement pensions for a lump sum. We think that that may be a reason for someone in the future to invoke Article 14 of the European Convention on Human Rights on the grounds of discrimination.
§ However, the more substantive case which I want to make today concerns whether such an accrued pension is in fact a possession. As I have said, the Government seem to be treating this as a kind of ex gratia payment which is not a possession. We would argue that because it is the result of the accrual of a contributory pension—the person has paid their contributions into it—the fact that it is deferred means that it is a possession. For example, if a person chooses not to defer their pension but to take it immediately, and to put any resulting savings week by week into a savings account, they would accrue a sum of money which would form part of their estate. There is no difference whether the money is in a bank account or is with the Government; it should be treated in the same way. In failing to recognise this money as a possession, we think that the Government are opening themselves up potentially to actions under not Article 14, but Article 1 of the ECHR, covering every person's entitlement to the peaceful enjoyment of their possessions.
§ As it stands at the moment, given the risk—the noble Baroness talked a moment ago about the slight risk that people were running in deferring pensions; that to me seems to add a significant risk—what possible advantage could there be for someone to defer? Why should they not just take the pension early and put it away in a savings vehicle? That does not 153GC make sense. So, on those two bases, we think that it is a possession and an entitlement and something against which a survivor could make a claim. I therefore beg to move.
§ Lord Skelmersdale
It is no secret—indeed, I said so at Second Reading—that I disapprove of the lump sum option, but I make clear that that is a personal view; it is not yet the view of my party although it may become so. Taking the situation in the Bill as read, and as the noble Baroness, Lady Barker, has done in moving the amendment, the question surely arises of when the election to take a lump sum is made. If you elect to take a lump sum at the very beginning when you are 65 and you work for X years—it does not really matter for how long—the lump sum will be identifiable when you die. If you die at any time after the first year after you are 65, as a man, clearly you will have accrued a putative lump sum.
§ The noble Baroness then asked what happens to that lump sum. In those circumstances, I can understand that the lump sum should be paid to the deceased person's estate or on the transmission, however that may be—often, to the wife, but through the will there may well be a division in some other way. That is fine. But as I understand the position in the Bill, which is the Government's position, you will not make an election until after you have retired finally at age 67, 70 or whenever. Therefore, until that point, there is no accrued sum in prospect. Indeed, you then have to make a decision yourself whether, as I should prefer, to take the extra weekly or monthly pension or to take the lump sum. So, much as I regret to say so, I do not think that the amendment would work.
§ Baroness Hollis of Heigham
The amendment may well be technically defective, but that is not where I want to go. The problem is that in all of this, we are dealing with a structure set up that most of us now realise is increasingly less relevant, under which the married woman's pension, the 60 per cent pension, is derived from the husband and the assumption is that his waged work provides for her. There is a world of work that is waged and a world of domestic care that is not and because her domestic work supports his waged work, she is a co-owner of or is entitled to his pension and protection.
§ Of course there are all sorts of unfairnesses about that that have not even been mentioned today, such as that a single person will pay the same NI rate as a married person but will never be able to draw a 60 per cent dependant's payment from it. Most of the problems that we face today arise because we are dealing with that structure. Given that, the situation has always been that his increments, when he draws them, will benefit her and, if he dies and she goes on to his category A pension, she inherits his increments. Therefore, if his lump sum has already been paid, it is part of his estate and, in the normal course of events, she would inherit that, if that is what he chose. The question is what happens when someone has deferred drawing his basic state pension—he may be 67 or 68—and dies. A potential right has not yet materialised about the woman's position on that. The same 154GC framework should cover that situation. In the same way as she would inherit increments—it would be her choice—she would inherit the lump sum. However, in the same way as the increments would not be a property available to a dependent child or some other person, or would be turned into a lump sum to go into a will, the lump sum would not be either.
§ In other words, within the framework of the contributory benefits as it is now, it is a long established principle that provision is made for a surviving spouse. While both members of a married couple are still alive, the contributions of one member may entitle the other to a pension if their own contributions are deficient.
§ The inheritance arrangements that we have produced in the Bill for lump sums are an extension of the current rules governing the provision of survivors' benefits, which explicitly recognises that marriage implies enduring mutual financial support and obligations. The amendment would undo that principle, by requiring a lump sum to be paid to the estate of a deceased deferrer in any case where the conditions of entitlement to it would have been met by the deferrer, regardless of whether they were married or not. As matters and the framework stand, we do not think that the right approach. Obviously, it would treat unmarried couples and single people differently from what is currently the law. It would allow children or any other beneficiary of the deceased, including a neighbour or friend if they saw fit, to benefit.
§ We do not believe that to be right. It is an extension of our current increment rule. All the provisions may need looking at in a wider context; no doubt we will have the discussion in the next year. However, the noble Lord, Lord Skelmersdale, is right. At the moment, we are trying to treat the lump sum in exactly the same way as we are treating increments—no more, no less. A woman would inherit the increments and the lump sum, but no one else would. We do not have sufficient basis to go beyond that. If we did so, it would open up the whole issue of whether we turned increments into a lump sum to be inheritable, whether there was a dependant's pension for unmarried partners, and so on. One could not draw the line anywhere, except with the existing framework.
§ In terms of its value, the lump sum set out is not less than 2 per cent above bank base rate, which we think fair. At the moment, the best current rate would be 6.75 per cent. Today at Abbey, one can get about 7 per cent. Our rate would ensure a return—as and when the changes come through, if noble Lords agree to them—of 10.4 per cent. People would do much better under this arrangement, provided that they took the gamble on their own life expectancy. That is the risk. I am sorry that I shall not be able to be more helpful to the noble Baroness but, while the current structure of category A and B pensions remains and increments follow those rules, we will treat lump sums in the same way.
§ Lord Skelmersdale
Before the noble Baroness, Lady Barker, responds, will the Minister be good enough to answer my question? When does one elect for the lump 155GC sum? Presumably it is when one finally retires, as I suggested earlier. A second point occurred to me. The weekly accruals will be paid to the widow at 60 per cent, presumably, in the same way as the original pension. Am I right in both cases?
§ Baroness Hollis of Heigham
On the first point, yes. The choice of whether to go for lump sum or increments would he made by the individual at the point of retirement. However, there is a cooling-off point—I do not know whether we will get to it—so that if someone feels that they have made the wrong choice within three months, they can revisit it. That is meant to be a decent way for people who have taken increments and change their mind and want a lump sum, or vice versa, to do so. On the second point, once someone becomes a widow they go on to the husband's category A pension—a 100 per cent basic state pension, in other words, rather than her 60 per cent. At that point, she would also enjoy his increments.
§ 4.30 p.m.
§ Lord Oakeshott of Seagrove Bay
Am I right in thinking that, if a single pensioner decides to defer a pension for several years, continues working and then dies, his children—or whoever he wants to leave his money to—lose out completely, and that the benefit of the deferral accrues to the Government? That may help to clarify the issue.
§ Baroness Hollis of Heigham
The position is exactly the same as the current situation when a single person, such as a widower with children, who had earned increments dies. Those increments do not go to the children either. The lump sum, although there are different financial assumptions attached, is meant to be a decent alternative option which so far has not existed for people who would like access to the lump-sum provision. At the moment such a widower would not be able to bequeath his increments, in the same way as he would not be able to bequeath the lump sum if he died before he had joined it. If, for example, he retired at 67 and had two years of enhancement, the lump sum of, say, £15,000 would go into his building society account. meaning that, if he died three years later, the money would become part of his estate. Similarly, if he had saved up his increments and put them into a building society, they would go into his estate. There is no right of inheritance, except to the spouse, if the person entitled to the rolling up, either in the lump sum or in increments, dies before it has been drawn down.
§ Lord Oakeshott of Seagrove Bay
I understand that. But to me, without such a long background of being stuck within the current framework, that identifies the unfairness of the provision. If you do not take your pension at 65, you are gambling that you will live longer. Would it not in practice be fairer to provide that if someone dies, it should be a sort of deemed election, if I can follow the analysis put by the noble Lord, Lord Skelmersdale? Perhaps the fact that the proposed system might work differently from 156GC increments tells us that the approach for increments is unfair. It seems that, in practice, it is a gamble that the state wins and the individual's estate loses.
§ Baroness Hollis of Heigham
One cannot take the issue in isolation from the whole situation of the dependency pension and the like. If we were going down that route, we could not draw the line there rather than anywhere else, in terms of the discrepancy in having the category B provision for married women and nobody else. This is just one way of getting into that issue. It is perfectly proper to raise it, but if we did that, frankly we would create probably twice as many anomalies as we would solve.
§ Baroness Barker
That was a very helpful debate. I simply cannot see how most people would conclude that it would be right to defer in those circumstances and to leave open the risk that benefits that could have accrued to their estate would not come under their control. Like the noble Lord, Lord Skelmersdale, I think that that calls into question the issue of the lump sum and how it will work. With those clarifications, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Schedule 11 agreed to.
§ Lord Higgins moved Amendment No. 333:
§ Before Clause 284, insert the following new clause—