Central FoI Team Caxton House 6-12 Tothill Street London SW1H 9NA www.dwp.gov.uk Email: freedom-of-information-request@dwp.gsi.gov.uk Date 16/4/15 Our Ref: IR 162 Dear Mr C Thompson, Thank you for your Freedom of Information (FoI) internal review request received on 19/3/15. Your main concerns were: I am writing to request an internal review of Department for Work and Pensions handling of my FOI request 'What Government Department Authorised deletion of information about DWP paying GMP increases from DWP Documentation and Booklet NP 46. In our letter of 29 October 2014 we explained that you original request for an Interim Review of the above (IR 252) had been met in our responses to FoI 1917 and Internal Review 377. However, in answer to your question the DWP authorised the change as we are responsible for the editing and publication of our own leaflets. You also raised the correspondence you initiated from 2008 regarding the editing of NP46 and have asked for our observations on some paragraphs from the NAO report Improving Service Quality: Action in Response to the Inherited SERPS Problem of 20 March 2003. As you know from previous correspondence on this matter (our response of 21 July 2014 (FoI 1917)) we have advised you that the DWP is not obliged to comply with your request on cost grounds. Lastly you asked for an account of how the DWP has treated contracted out employment over time and how this changes in the new State Pension. This is the main content of this letter. We also cover the background to the information around NP 46 which has been of particular interest to you. How DWP has treated contracted out employment from 1978 to 1997 Contracting out was introduced in 1978 as part of the additional State Pension arrangements (SERPS). In return for funding an occupational pension (the Guaranteed Minimum Pension (GMP)), that would pay benefits broadly equivalent to the SERPS that the person would have received had they not been contracted out, both employers and employees pay a lower rate of National Insurance contributions.
Workplace pension schemes were not required to index their GMPs in payment earned prior to 6 April 1988 but are required to increase GMPs that have been accrued since April 1988 by price inflation up to a maximum of 3%. To ensure that no-one was worse off for contracting out, people built up an entitlement to SERPS. However, to prevent the double provision of the same pension, through the workplace and through the state, and to reflect the fact that lower National Insurance contributions have been paid by the individual and their employer, a deduction called the Contracted out Deduction, which broadly equates to the GMP or SERPS accrued, (whichever is lower) is applied to the SERPS. Cost of living increases in respect of SERPS are paid by the Government increasing any SERPS by inflation each year and then reducing it by a Contracted out Deduction (to represent the GMP as explained above). In calculating the Contracted out Deduction, the Government takes account of the increase of the GMP required by the legislation; i.e. the increase of the GMP accrued post 1988. Depending on an individual s circumstances, the effect on the recipient can be virtually the same as if increases had been paid on their pre-1988 GMP. However, the Government does not pay increases on GMPs as these are an element of an occupational pension. A simple example of the SERPS/contracted out deduction relationship is as follows. In the example the person reaches State Pension age on 5 April 2016, they have a basic State Pension of 115, SERPS of 50 and a Contracted out Deduction of 30 to reflect contracted out employment between 1978 and 1987. In the example we have used illustrative amounts of earnings growth (4%) and price inflation (2%). Pension award 2015/16 Basic State Pension 115 SERPS 50 Contracted out Deduction 30 Total State Pension payable 135 Uprating for 2016/17 year Basic State pension increased by earnings 119.60 SERPS by prices 51 Contracted out Deduction 30 Total State Pension payable 140.60 The process of increasing SERPS by prices and offsetting the Contracted out Deduction plus the value of any indexation (nil between 1978 and 1987 and up to 3% accruals from 1987) provides an increase for that part of SERPS built up when the person was contracted out. Annex A of this letter provides the legal framework for SERPS.
The new State Pension and contracted out employment The position above covers the SERPS arrangements for people who were contracted out and reach State Pension age until 5 April 2016. From 6 April 2016 the new State Pension is introduced and, as part of radical reform of state pensions, SERPS will close as will the additional State Pension/Contracted out Deduction calculation described above. However, most people reaching State Pension age after that date who have been contracted out in the past will be able to benefit from transitional arrangements. At 6 April 2016 people will have their National Insurance (NI) records up to the 2015/16 tax year valued and their starting amount for the new State Pension will be the higher of their record valued under the old scheme or the new scheme rules. The starting amount will be reduced to reflect any periods of contracted out employment. As explained above, this reduction happens to prevent double provision. However, the reduction currently applies at somebody s State Pension age. Under the process described here the reduction will apply at 2016 and gives some people the opportunity to build further pension something impossible under the current scheme. People can build further pension up to the full value of the new State Pension, which is 151.25, the illustrative amount of new State Pension for the 2015/16 year, until they reach State Pension age. For example, someone who had worked or had National Insurance Credits in the 2016/17 tax year, and who reaches State Pension age in the 2017/18 tax year can increase their starting amount by 4.32 a week. (This is 1/35 th of 151.25). In addition to the transition arrangements above, the full amount of the new State Pension will be increased each year by at least earnings. Why DWP took this approach to transition The Government notes in the Green Paper A state pension for the 21 st century (Command Paper 8053) that without a policy intervention the contracted out offset would mean that around half of all pensioners would still not achieve the full new State Pension by 2050. In the White Paper The single-tier pension: a simple foundation for saving (Command Paper 8528) the Government sets out proposals for the transition that means over 80% of pensioners will receive a full new State Pension by the 2030s (Chapter 4). Chart 4.1 provides information about the proportions of people who would get the full new State Pension in the White Paper: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/18122 9/single-tier-pension.pdf The chart shows the estimated proportions of people reaching State Pension age who will receive the full new State Pension directly from the state. This was included
in the White Paper to demonstrate the importance of the transition policy. Without the policy, many millions of workers would have an uncertain view of their state pension entitlement well into the 2050s, due to contracting out. Most people reaching State Pension age from 2016 will retire on pension income above the full rate of the new State Pension. While people reaching State Pension age in 2016/17 will receive a combination of state and contracted out pension, people retiring in later years will see more and more of their pension delivered directly by the state. As the White Paper chart shows, the proportion of individuals receiving the full rate of the new State Pension directly from the state will increase because individuals with starting amounts below the full rate will be able to gain additional qualifying years from 2016. Communicating the additional state Pension uprating Much of the correspondence you have initiated has been about the removal of the way additional State Pension uprating in relation to contracted out employment has been described by DWP. In particular you have been interested in the removal of text from NP46. The April 2005 edition describes the arrangements as follows (our italics): April 2005 NP46 pages 51 and 52 Protection against inflation Each year the part of your pension earned from 6 April 1978 that replaces additional State pension will be reviewed to ensure that it is protected against inflation. Occupational pensions built up before 6 April 1988 will, in general, have all the increases needed to keep up with inflation added directly to your additional State Pension Occupational pensions built up from 6 th April 1988 to 5 th April 1997 and personal pensions built up from 6 th April 1987 to 5 th April 1997 will be at least partly protected by the scheme. The rate of increase will be 3% or equal to the rate of inflation, if this is less. The rate of your additional State Pension will, in general, be increased by any amount that inflation goes above 3% Since 6 th April 1997, contracted-out occupational schemes must increase the whole of the pension built up after that date in line with inflation up to 5%. This includes the part of the pension that derives from the contracted-out rebate For personal pension schemes only that part of the pension made up from the Protected Rights (rights deriving mainly from the National Insurance contribution rebate) is subject to the increase. If your Guaranteed Minimum Pension (GMP) or the contracted out deduction in a money purchase scheme (both occupational and personal) is higher than the value of the additional State Pension you would have received from SERPS if you had stayed in the SERPS scheme, you may not receive an additional State Pension from
SERPS. The only inflation proofing on your pension will be the increase that your employer has to pay. Your SERPS entitlement is recalculated every year to cover inflation. Once the additional State Pension is more than your GMP or COD the difference will be paid with your State Pension. The text provides a high level description of the calculation described earlier in this letter and puts into practice the policy objective that people who were contracted out should be no worse off for having done so. As you know we have tried to find out what led to the text being dropped. At the time the text was removed DWP had been undertaking a different approach to providing information in leaflets prompted by the following from the NAO: It is vital that people can rely on the accuracy of the leaflets the government produces to make informed choices about their lives. And it is vital that they can get hold of these leaflets and easily understand them when they do. The Department for Work and Pensions has made progress in these respects but needs to manage better the leaflets it produces to ensure those needing information can access it when they need to. NAO Report: Department for Work and Pensions Resource Accounts 2004-2005 (26 January 2006). At this point it may be worth recalling the information we gave you, prompted by the Information Commissioner, as part of a process where we may be able to suggest ways of restricting your information requirements to provide you with more assistance. We had said that the information you requested concerns text changes made to one of the Department s leaflets at a time when the entire range of leaflets was undergoing comprehensive review. Our difficulty in finding the relevant information was that there was no record of the review of NP46 (the main guide to State Pensions) listed in our clerical indexes or any other obvious file names such leaflets review so in effect we had already tried to narrow down the search parameters. We went on to say that there is a possibility that more detailed revisions were made on proof copies in manuscript to tidy and simplify text at a time when the Department was reassessing leaflets in a quite radical way to make them more accessible. Further to this, by way of an example, we said that in our electronic files we have a draft copy of NP46 dated 21 November 2005 which is 92 pages long and which included the description of the gross Additional Pension/contracted out deduction calculation mentioned above. In the next draft copy we hold dated 29 August 2006 the description above has been removed. However, the 29 August 2006 version has been edited significantly and reduced to 63 pages so a substantial amount of text was removed. Unfortunately, and we are sorry about this, we do not hold the background to this editing of NP46 and thus the reason why we have attempted to trace the changes through the clerical file records. In addition, while we understand you had conversations with a member of the State Pension policy team in 2008 about re-instating a description of the uprating process in NP46, the Department, subsequently began to move away from the large technical
guides that provided detailed accounts of policies. The emphasis switched to much less technical and much more customer friendly literature. You have been concerned that people reaching State Pension age from 6 April 2016 can no longer benefit from the additional State Pension/Contracted out Deduction calculation. There will be some people reaching State Pension age in the first year of the new State Pension who cannot build any further pension. To put your concerns in context, someone on average earnings during the period between 1978 and 1987/88 could, typically, have a GMP of around 30 a week which would be around one fifth of the scheme benefits built up during that period. However, people will benefit from a higher starting amount than they could have expected when they were building their GMP. This is because the triple lock method for uprating (the higher of price or earnings inflation or 2.5%) means the full basic State Pension will be around 560 a year higher in 2015/16 than had it been uprated just by earnings since2010. It means the full basic State Pension is the highest relative to average earnings than it has been for over two decades. Clearly the new State Pension breaks with the past and is very different from SERPS and from how state pensions were presented in NP46 and other leaflets. It is however, important to reiterate that occupational pensions will be paid as always, as there has been no change to that legislation. The new State Pension is radically different to the existing scheme. DWP is not constrained from introducing the changes by what was said in leaflets. So regardless of the wording in the leaflets and when the wording was changed it is legislation that determines the position. The new system will be simpler overall than the existing system and better for women, the self-employed and low earners. Change as significant as the new State Pension always leads to some cliff edge changes and it is simply not possible to consider every single individual circumstance. I hope you find this note useful. Yours sincerely, DWP Central FoI Team ---------------------------------------------------------------------------------------------------------------------------- Your right to complain under the Freedom of Information Act If you are not content with the outcome of the internal review you may apply directly to the Information Commissioner s Office for a decision. Generally the Commissioner cannot make a decision unless you have exhausted our own complaints procedure. The Information Commissioner can be contacted at: The Information Commissioner s Office, Wycliffe House, Water Lane, Wilmslow Cheshire SK9 5AF www.ico.org.uk/global/contact_us or telephone 0303 123 1113 or 01625 545745
E-mail message from Mr Thompson 19 March 2015 Dear Department for Work and Pensions, Please pass this on to the person who conducts Freedom of Information reviews. I am writing to request an internal review of Department for Work and Pensions's handling of my FOI request 'What Government Department Authorised deletion of information about DWP paying GMP increases from DWP Documentation and Booklet NP 46.'. [ I am having difficulty in believing that you have looked for the information seriously especially as I mentioned that I had been in correspondence with Mr David Annison since August 2008 when he had said to me in a email dated 27 August 2008 " That said an explanation of the inflation proofing of GMPs and informing people that their additional pension would be reviewed was included in the previous version of the NP46 but was removed when the section about contracting out of additional State Pension was amended. I have, provisionally, gained agreement that this section should be restored at the next review.". As you can see he said he had he had provisionally agreement that this section would be restored. I reviewed several times with him the last being 25 April 2013 when he said on 25/04/2013 We are the process of updating the NP46 but cannot give you an indication of when it may be available. Dave Annison - DWP, CPD, 1st floor, Caxton House, Tothill St. London Again you can see that there was no mention of the NP 46 not going to be produced or any mention of not reinstating the wording about GMP increases. You state you do not hold the background to this radical editing of NP46 which I find difficult to believe as Mr Annison was corresponding with me in April 2013. Have you asked Mr Annison what he knows about the subject and looked at his correspondence. I would like to bring to your attention a report done by the "NAO office Improving service quality: Action in response to the Inherited SERPS problem" Page 21 Paragraph 3.8 3.8 The Department have also been developing a content management system. The Pensions Group has used this to place on a single database details of all the Department's external pensions information products,together with other Government Departments' leaflets that refer to the Department's pensions information - more than 1,000 products in total. The intranet content management function is used to help maintain the accuracy and reliability of these products, and the intranet provides a single source of external pensions products (such as forms, leaflets and other
marketing materials) that can be accessed by all staff across the Department. Details on the pensions database include the names of product owners, a search facility to identify those products needing change, an audit trail for changes that have been made and an automatic trigger to ensure that each product is periodically reviewed. Did you refer to your database that includes the name of product owners and search facility to identify the products needing change, an audit trail for changes that have been made. If you had I would expect you to be able to find the information I want Page 23 Paragraphs 3.10 and 3.11 The Department have established new procedures for developing new information products and reviewing existing ones 3.10 In October 2001, the Department introduced improved procedures for producing new leaflets and reviewing existing ones (Figure 5). These require that each leaflet be reviewed every six months, with revised versions printed each October and April where appropriate. A dedicated manager is responsible for involving all stakeholders, the Department's Solicitors Branch and, where appropriate, the Social Security Advisory Committee. The head of the relevant policy branch is responsible for signing off each new, amended or reviewed leaflet. The Department's Communications Directorate should instigate each six-monthly review and is responsible for editing and typesetting leaflets, checking for "Plain English" and arranging printing and distribution. 3.11 As well as the review of individual leaflets every six months, during the second half of 2001-02, the Benefits Agency reviewed their complete set of pensions leaflets for consistency, duplication and missing material. In October 2002, Jobcentre Plus began a similar exercise for their leaflets for working-age customers, and reviews of leaflets about children, disabled people and their carers are planned for later in 2002-03. The Pensions Group have set up a "review forum" to periodically review their external pensions products, with a view to maintaining and improving the quality of pensions information for the public. You will see that it mentions that your department had established new procedures for producing new leaflets and reviewing existing ones and there being a head of the relevant policy branch being responsible for signing off each amended or reviewed leaflet. Do you know if this was done in this case and if so have you asked the relevant policy head what they know about NP 46 changes and it then being withdrawn. When you reply I would like to take up your offer to provide, a narrative account of the policy regarding additional State Pension and the way you have treated contracted out employment over time and how this will change when the new State Pension is introduced in April 2016. I believe this is a key concern of yours.
Legislative Framework SERPs Annex A Social Security Contributions and Benefits Act 1992 Section 22 Earnings factors (1)A person shall, for the purposes specified in subsection (2) below, be treated as having annual earnings factors derived- (a)in the case of 1987-88 or any subsequent tax year, from so much of his earnings as did not exceed the upper earnings limit and upon which primary Class 1 contributions have been paid or treated as paid and from Class 2 and Class 3 contributions; and (b)in the case of any earlier tax year, from his contributions of any of Classes 1, 2 and 3; but subject to the following provisions of this section and those of section 23 below. (2)The purposes referred to in subsection (1) above are those of- (a) (b)calculating the additional pension in the rate of a long-term benefit. (2A)For the purposes specified in subsection (2)(b) above, in the case of the first appointed year or any subsequent tax year a person's earnings factor shall be treated as derived only from so much of his earnings as did not exceed the applicable limit and on which primary Class 1 contributions have been paid or treated as paid. This subsection does not affect the operation of sections 44A and 44B (deemed earnings factors). (2B)"The applicable limit" means- (a)in relation to a tax year before 2009-10, the upper earnings limit; (b)in relation to 2009-10 or any subsequent tax year, the upper accrual point. The Pensions Schemes Act 1993 Section 46 Effect of entitlement to guaranteed minimum pensions on payment of social security benefits (1)Where for any period a person is entitled both- (a)to a Category A or Category B retirement pension, a widowed mother's allowance, a widowed parent's allowance or a widow's pension under the Social Security Contributions and Benefits Act 1992; and (b)to one or more guaranteed minimum pensions, the weekly rate of the benefit mentioned in paragraph (a) shall for that period be reduced by an amount equal- (i)to that part of its additional pension which is attributable to earnings factors for any tax years ending before the principal appointed day (ii)to the weekly rate of the pension mentioned in paragraph (b) (or, if there is more than one such pension, their aggregate weekly rates), whichever is the less.
The Pensions Schemes Act 1993 48A Additional pension and other benefits (1) In relation to any tax week where- (a)the amount of a Class 1 contribution attributable to section 8(1)(a) of the Social Security Contributions and Benefits Act 1992 in respect of the earnings paid to or for the benefit of an earner in that week is reduced under section 41 or, in the case of a week falling before the abolition date, under section 42A (as it then had effect), or (b) in the case of a week falling before the abolition date, an amount is paid under section 45(1) (as it then had effect) in respect of the earnings paid to or for the benefit of an earner, section 44(6) of the Social Security Contributions and Benefits Act 1992 (earnings factors for additional pension) shall have effect, except in prescribed circumstances, as if no such primary Class 1 contributions had been paid or treated as paid upon those earnings for that week and section 45A of that Act did not apply (where it would, apart from this subsection, apply). (2)Where the whole or part of a contributions equivalent premium has been paid or treated as paid in respect of the earner, the Secretary of State may make a determination reducing or eliminating the application of subsection (1). (3)Subsection (1) is subject to regulations under paragraph 5(3A) to (3E) of Schedule 2. (4)Regulations may, so far as is required for the purpose of providing entitlement to additional pension (such as is mentioned in section 44(3)(b) of the Social Security Contributions and Benefits Act 1992) but to the extent only that the amount of additional pension is attributable to provision made by regulations under section 45(5) of that Act, disapply subsection (1). (5)In relation to earners where, by virtue of subsection (1), section 44(6) of the Social Security Contributions and Benefits Act 1992 has effect, in any tax year, as mentioned in that subsection in relation to some but not all of their earnings, regulations may modify the application of section 44(5) or (5A) of that Act.