About Time!

The curtain has finally come down on a Whitehall farce that threatened to leave everyone with their trousers down. Late in November the Secretary of State for social security Alistair Darling tried to cover his own embarrassment by doing a sharp U-turn in an attempt to restore his own dignity in the closing scene.

In the face of criticism from MPs, almost every national newspaper, Saga Magazine, and thousands of letters from individual pensioners, the Government finally conceded a partial defeat. It will now exempt three million people from its plans to cut in half the SERPS pension inherited by a widow and reduce the cut for two million more. At the same time it scrapped a generous scheme to compensate people who had been misled by the Department of Social Security over the last fifteen years.

This sorry tale began in 1986 when the previous Conservative Government decided to cut back on the future cost of the State Earnings Related Pension Scheme (SERPS). At the time a widow inherited all her husband’s SERPS if he died first – and a husband inherited his wife’s if he died before her. The Government thought it would save money by cutting the amount in half. But it recognised that people needed some warning of the change and put off the starting date by 14 years – those who died before April 6 2000 would pass on all their SERPS; those who died on or after that date would pass on only half. That left time for people whose wives or husbands would be affected to pay more into a private or company pension scheme to enhance the benefits payable to the survivor.

But the plans went horribly wrong when Department of Social Security bureaucrats forgot to tell anyone that the change was going to happen. People who enquired about how much pension a widow would get were told she inherited all of her late husband’s SERPS. Department of Social Security officials later justified this policy by saying that although the answer would not be true in the future, it was true at the time it was given. The Department carried on publishing this misleading information in its leaflets until 1996 – ten years after the change was agreed by Parliament. Printed material was altered in 1997 but people who enquired by phone or in person at local Benefits Agency offices continued to be given wrong information, some as recently as 1999.

As a result, people made plans on the false assumption that all the SERPS would be inherited by a widow or widower instead of just half. In 1997 the new Labour Government discovered that things were going wrong. Labour had voted against the change in opposition, but once in power it baulked at the cost of reversing it. Last March, after nearly three years consideration, it proposed a compromise. It would delay the introduction of the change until October 6 2002. So anyone who died before that date would pass on all their SERPS – those who died from that date onwards would pass on just half of it. But anyone who had been misled by the Department of Social Security could claim permanent exemption from the cut. In other words all you had to do was say that you enquired or read a leaflet and you would not suffer the reduction in inherited SERPS however long you lived.

This compromise plan was widely criticised. In early November a committee of MPs called it a ‘cheat’s charter’ and an ‘invitation to fraud’. And later the same month Alistair Darling did his U-turn and announced his final scheme.

The Government has not abandoned the cut in inherited SERPS completely. Instead it has decided that the cut will not begin for anyone until 6 October 2002 and how it applies from that date will depend on the individual’s date of birth, not their date of death.

· Anyone who has already reached pension age by that date will be permanently exempt from the change. In other words men born before 6 October 1937 will be exempt and will pass on the full amount of their SERPS to their wives whenever they die (the age of the wife is irrelevant). Similarly, a woman born before October 6 1942 will also be exempt and pass on 100 per cent of her SERPS to her husband should she die first.

· The cut in SERPS will apply in full to anyone who reaches pension age on or after October 6 2010. That means that men born on or after October 6 1945 will only pass on half their SERPS to their wives if they die first. And women born on or after July 6 1950 will only pass on half their SERPS to their husbands if they die first. It is July rather than October for women because their pension age is being raised from 60 to 65 in stages beginning in April 2010.

· People born between these two dates will pass on between 60 and 90 per cent of their SERPS to their spouse. The details are set out in the table.

1. The table applies to the spouse who dies first. The age of the surviving spouse who inherits the SERPS is irrelevant.

2. The rules apply equally to men and women. A man who is widowed will normally inherit the SERPS which his wife has earned.

Introducing these delays and exemptions will cost the Government more than £12 billion. But the phasing-in arrangements mean that a man now in his early 60s or late 50s will still have very little time to take out better private protection to compensate for the cut in SERPS of between 10 and 40 per cent which his widow will face.

And even if he has been misled by Benefits Agency bureaucrats in the past, he is now very unlikely to get compensation. The Government has scrapped plans for a generous scheme of redress for people who were misled by officials or leaflets in the past 15 years. Under the new arrangements, someone who is affected by the changes will only get compensation if they can prove they were misled and that the wrong advice caused them to take steps which led to financial loss. It will not be enough to say they read a leaflet or were misadvised over the telephone or in a conversation with an official. They will have to produce proof – a letter or notes taken at the time – and show that they did not make adequate provision for a widow on that basis. It is unlikely many people will qualify.

February 2001

e-mail Paul Lewis on paul@paullewis.co.uk