Social Security Benefits Up-rating Order 2012

My Lords, the Social Security Benefits Up-rating Order 2012, the Guaranteed Minimum Pensions Increase Order 2012 and the Pensions Act 2008 (Abolition of Protected Rights) (Consequential Amendments) (No. 2) Order 2012 were laid before the House on 30 January 2012, and I am satisfied that they are compatible with the European Convention on Human Rights. I will speak first to the two smaller orders: the first order makes minor amendments to protected rights; the second order increases guaranteed minimum pensions—GMPs. We will then discuss the up rating of state pensions and benefits. The Pensions Act 2008 (Abolition of Protected Rights) (Consequential Amendments) (No. 2) Order 2012 makes minor amendments to the Pensions Act 2008 (Abolition of Protected Rights) (Consequential Amendments) (No. 2) Order 2011 in relation to amendments to be made to the Insolvency Act 1986 and the Pensions Schemes Act 1993 in respect of protected rights payments. By way of context, the 2011 order, which was approved by the House early in June last year, makes consequential amendments to primary legislation as a result of abolishing contracting out on a defined contribution basis on 6 April 2012, which is provided for in the Pensions Act 2007 and the Pensions Act 2008. Just before the debate in the House last June, an issue was noted that related to how the proposed amendments in Article 3 of the 2011 order would work. When introducing the debate, I therefore outlined the background to the Committee and said that we would address the issue, which we are doing now. Having previously made that statement, I do not propose to take up more time with further explanation, other than to say that the instrument before the Committee amends the 2011 order, before it comes into force, to remove the exclusion of protected rights payments from what counts as income for the purposes of income payments orders made under Section 310 of the Insolvency Act 1986, and from the scope of Section 159 of the Pension Schemes Act 1993, which provides that GMPs and protected rights payments cannot be assigned or charged. Both the amendments will ensure consistency with changes made to the Bankruptcy (Scotland) Act 1985 by Article 2 of the 2011 order. This is consistent with our original policy intention that the tracking of protected rights would cease after the abolition of DC contracting out. The Guaranteed Minimum Pensions Increase Order 2012 provides for contracted out, defined benefit schemes to increase their members' guaranteed minimum pensions that accrued between 1988 and 1997 by 3 per cent. Such increases are in line with the growth in prices or 3 per cent, whichever is the lower, and this year the 3 per cent cap will apply as inflation is higher. On the uprating order, I am sure noble Lords will welcome our decisions on increases to benefits in 2012. In total, the Government will spend £6.6 billion on uprating benefits in 2012. Alongside other measures that we have taken, it will deliver fairness to those who have worked hard all their lives, and protection to the most vulnerable in society during these difficult economic times. The consumer prices index, the CPI, remains our preferred measure for pensions and benefits indexation. We made this change at last year's uprating; some noble Lords may remember our extensive discussion on the relative merits of the price indices. I will not repeat myself on these points—despite the enjoyment I would gain—save to reiterate that the CPI is the Bank of England's target and the headline measure of inflation in the UK. It relates to a basket of goods, which is more appropriate for pensioners and benefit recipients because it excludes mortgage interest and is less volatile than the retail prices index, the RPI, which fell negative two years ago, with the result that many pensioners had their additional state pension frozen. The CPI methodology takes into account how consumers respond to price changes—an advantage that has won the support of many experts. Last year, the High Court upheld the Government's decision that the CPI could be used for pensions and benefits uprating, and we have robustly defended our case in the Court of Appeal. In April the Government will implement the full September CPI increase of 5.2 per cent across pensions and social security benefits. I will now discuss in more detail the individual benefit rates amended by the legislation. One of this Government's first actions was to restore the earnings link with the basic state pension. We went a step further and promised a triple guarantee to increase the basic state pension by the highest of the growth in earnings, the growth in prices or 2.5 per cent. In line with the triple guarantee, the basic state pension will rise 5.2 per cent to £107.45 per week, in line with the growth in the consumer prices index. This is an increase of £5.30—the largest ever cash increase to the basic state pension. This means that this year the basic state pension is forecast to increase to 17.1 per cent of average earnings, which is a higher share of average earnings than in any year since 1997. The basic state pension goes to more than 11 million pensioners in this country, and both this year and in the long term the triple guarantee will ensure that the basic state pension will provide a solid foundation on which recipients can build a retirement income. The triple guarantee will protect the value of the basic state pension in the long term. It is estimated that the average pensioner retiring this year on a full basic state pension will gain £13,000 over the course of their retirement as a result of the triple guarantee, compared with the old prices link. From April this year the additional state pension will also rise by 5.2 per cent, which will mean that those with a state second pension or state earnings-related pension, SERPs, will see the 5.2 per cent increase in both their basic and additional state pension income. This means that the increase in total state pension income for someone with a full basic state pension and an average additional state pension will be about £6.70 a week: £348 a year. The standard minimum guarantee in pension credit is the means-tested support that ensures all pensioners a minimum level of income in retirement. The legislation requires us to increase the minimum guarantee at least in line with earnings, so that over the long term the poorest pensioners see their incomes rise in line with that of the working population. However, this year the relevant earnings index stood below inflation at 2.8 per cent. We judged it unacceptable that the poorest pensioners on the guarantee credit would see the lowest increases. We wanted to ensure that those pensioners saw the full increase given to the basic state pension, and we will therefore increase the single rate of the standard minimum guarantee by £5.35, taking it to £142.70 per week in 2012. To ensure that the overindexation of the guaranteed credit is affordable, we will make some changes to the savings credit element of pension credit. In April, we will increase the savings credit threshold to £111.80 for individuals. This will mean that those with higher levels of income may see less of an increase, but no one should have a lower weekly income as a result of the uprating. This policy also enables us to focus spending on the poorest pensioners on guaranteed credit. On working age benefits, the Government have ensured that, even in these difficult economic times, benefits for disabled people and their carers and for those out of work and seeking employment will see the full CPI increase of 5.2 per cent. This increase will ensure that the most vulnerable people in society are protected and that those looking for work get the support they need to move into the labour market. Through the uprating order, the Government are spending an additional £6.6 billion in 2012. This means £4.5 billion more on pensioners, more than £1 billion more on disabled people and their carers, and more than £1 billion more on people who are unable to work through sickness or unemployment. Even in these tough economic times, the uprating commitment that I have outlined today will give real support to the poorest and most vulnerable in society. I therefore commend the orders to the House. I beg to move.