Committee stage in the Lords
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Lord Oakeshott of Seagrove BayNon-affiliated- Quote
- moved Amendment No. 1:
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Baroness GreengrossCrossbench- Quote
- I speak to my Amendment No. 5. The provision for gender impact assessments under the public duty to promote equality is welcome, and I congratulate the Government and the DWP as first department to make that provision. I also welcome very much recognition of the caring role as counting towards the 30-year qualification but, unless this is made retrospective, there will be stark inequalities between people with identical contribution records. The figures available to me—the noble Lord, Lord Oakeshott, referred to correspondence from Age Concern, Help the Aged and other bodies—suggest that this could be as much as £1,000 a year at current pension rates. We know that the situation of today’s pensioners remains acute: two-thirds of those in poverty are women; 40 per cent of eligible people are not taking up pension credit; and 47 per cent of people eligible for council tax benefit are not taking it up. Although, overall, the Bill will mean that outcomes between men and women converge, the Pensions Policy Institute, of which I have the privilege to be president, estimates that that will not happen until 2050. By then, the projected number of people of state pension age or older will amount to 25 per cent of the population, as opposed to 19 per cent now. In Committee in the House of Commons, the Minister said that the cost of making the 30-year requirement retrospective would be extremely expensive. The cost is estimated to be about £1 billion, yet the Government estimate that £4 billion will be saved by ending contracting-out rebates. The estimate of the value of unpaid childcare by grandparents is £220 billion and that of carers is £57 billion. In that context, how can the Minister say that £1 billion to address a significant unfairness is extremely expensive? The Government seem content to exploit the good will of families but are unwilling to give back this relatively small sum. We know that longer life expectancy, together with changing family structures, relationships and interdependencies, requires greater recognition and greater commitment from the Government. In correspondence that I have received, concern has been raised that the current method of each year deducting home responsibilities protection from a woman’s target working life of 39 years makes a current HRP year mathematically less valuable than a year of home responsibilities payments for women retiring from 6 April 2010 onwards. Something needs to be done and I hope that the Minister will respond favourably.
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Lord SkelmersdaleConservative- Quote
- My amendment in this group is intended to explore the extent of the analysis relating to the decision to improve the coverage of the full state pension. However, before I do that, like the noble Lord, Lord Oakeshott, I want to say a few words. First, as a former micro-member of the usual channels, I am well aware that it is necessary to have a balance between Committee stages taken in the Chamber of your Lordships’ House and those taken off the Floor of the House. The fact that previous pensions, welfare or national statistics Bills have been held in one or the other is of no consequence as regards precedence. Secondly, as I said at Second Reading, there is a large measure of consensus between us and the Government on the Bill. However, as usual, problems arise due to what is not, rather than what is, in the Bill. Most of the amendments in the Marshalled List for this Committee stage relate to the category of what is not in the Bill. In speaking to my amendment, I start by making a purely probing comment. The reform in the Bill relating to state pension age has been widely welcomed and we on these Benches fully support it. However, we should take care that the Bill does not promise what cannot be delivered. It is in everyone’s interests, especially those who hope to receive a full state pension, that the extra cost to the taxpayer of reducing the required amount of national insurance contributions is affordable and that phasing in the new requirements is done fairly, smoothly and with the least possible amount of confusion. As I understand it, the only information in the public domain, as the noble Baroness, Lady Greengross, mentioned, is in the regulatory impact assessment, which explains why the whole package of reforms that the Bill introduces will raise spending on pensions from 5.1 per cent to 7.3 per cent of gross domestic product. As we shall no doubt hear in Committee, that is still considerably less than is spent on state pension provision in other European countries. However, the increase will still have to come from somewhere and it will be necessary either to increase taxes or to reduce public expenditure in other areas. I would be interested to hear from the Minister which route the Government intend to take. If it is the latter, are there any particular savings that they have in mind already? My noble friend, Lord James, spent many months discovering many such savings when he produced his excellent report. However, the Government are hell-bent on increasing expenditure, not least in the areas of health and education, with little obvious benefit. There are also administration costs. A total of £192 million is expected to be spent on adjusting the pension systems to the new conditions. The Government have an unfortunate record in introducing large scale administrative reform, especially where complex computer systems are involved. The report that this amendment hopes to provide would highlight any unrealistically optimistic predictions and would also be extremely valuable should the estimates not prove to be accurate. Therefore, I look forward to hearing the Minister's response. I find the suggested timetable of 2008 in the amendment in the name of the noble Lord, Lord Oakeshott, rather optimistic. Although we on these Benches fully support the Government’s intention to reduce the required contributions to 30 years, I do not think it is feasible to introduce such change in so short a time.
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Lord McKenzie of LutonLabour- Quote
- I very much welcome the opportunity in Committee to debate the detail of a Bill that has been widely welcomed. I welcome contributions from veterans of past pensions debates and newcomers, such as myself and my noble friend Lady Morgan. We are happy to engage with Members in Grand Committee or on the Floor of the House—whatever the usual channels determine. Amendments Nos. 1, 5 and 6 all concern the keystone of our state pension reforms: namely, that to qualify for a full basic state pension there will be one single 30-year contribution condition. These amendments raise three important points: first, why the Government have chosen 2010 as the introductory year for the 30-qualifying-year condition; secondly, why we do not propose to apply the change to both existing and future pensioners; and, finally, why we do not intend to phase in this reform. In responding to these important questions, I begin by saying that Clause 1 addresses the inequality of state pension outcomes for men and women. It will bring forward the improvement in women's outcomes in particular, with almost three quarters of all women reaching pension age in 2010 receiving a full basic state pension. Moreover, from 2025 the proportion of women reaching state pension age with a full basic state pension will, for the first time, equalise with men at over 90 per cent. Without these reforms only around 75 per cent to 80 per cent of people would be entitled to a full basic state pension by then. It surely must be the case, though, that when changes are made a line has to be drawn somewhere. To bring that line forward from 2010 to 2008, as the noble Lords, Lord Oakeshott and Lord Kirkwood, propose, would substantially increase costs, jeopardising the overall affordability of the reform package. The estimated additional net cost would be around £50 million in 2008 and around £150 million in 2009. Those additional costs would persist well into the longer term, so it is worth considering the practicalities. It would be impossible to bring these measures forward to 2008 because of the lead time required to make changes to both the pensions' computer system and the NIRS system. The lead time is at least 18 months. The noble Lord, Lord Skelmersdale, chided the Government on their performance on changes to computer systems. Having the proper lead time is the key to this working effectively. That lead time is similar to lead times for changes to systems in the private sector. We cannot undertake detailed design work until we receive Royal Assent, so we look forward to co-operation from Members on all sides of the Committee to get that as soon as we can. So, even putting costs aside, the earliest that the change could realistically be implemented is 2009, and the more complex the change—for example, phasing it in—the more challenging it would be. As Members of the Committee know well, there has been much debate about the cliff-edge effect of this measure, about which I wish to say a little more. I should begin by saying that bringing forward the introductory year to 2008, as proposed the noble Lord, Lord Oakeshott, would not resolve the cliff-edge effect, but would simply move the line so that it would apply to a different group of people. In response to the amendment tabled by the noble Lord, Lord Skelmersdale, and the noble Baroness, Lady Noakes, I acknowledge that there is much to be said for phasing in major changes in policy in order to graduate the effect whereby people are treated significantly differently on either side of a seemingly arbitrary line. That is exactly what we would have done, were there not overwhelming reasons for making these changes with full effect from 2010. It is inescapable that the benefit of this measure is optimised if we introduce it in one hit. We are determined that these measures benefit the maximum number of people. I accept that if we were to smooth the reduction in qualifying years to 30 over a period of a few years, there would be a less stark change in outcomes either side of A-day. However, it would also mean that fewer people would benefit overall and, moreover, the critical cohort of women aged over about 45 today—who we have identified as being in particular need of help—would be most disadvantaged by such a phasing arrangement. I assure noble Lords that we have explored options for mitigating the cliff edge either side of 6 April 2010, but we have concluded that no option provides an acceptable solution. The options are either unfair in principle or they introduce unwelcome complexity or are simply unaffordable. We believe that there are two realistic ways that this reform could be structured so as to smooth the differences in outcomes. First, we could introduce the single contribution condition more slowly with a phased transition starting with 38 qualifying years for women and men in 2009 and reducing qualifying years in one-year steps to reach 30 in 2017. This would smooth the introduction of the reform, but would make the gains for women reaching pension age from 2010 to 2016 less generous. As a result, around 65,000 fewer people would miss out on a full basic state pension and some 45,000 of them would be the women for whom the reform is most needed. Secondly we could make the measures retrospective, as the noble Baroness, Lady Greengross, suggested. I have some sympathy with this view as it seeks to improve the situation of today’s and tomorrow’s pensioners and would create a level playing field for those reaching state pension age either side of 6 April 2010, which is the point at which the single contribution condition in Clause 1 comes into force. On the face of it, the noble Baroness’s amendment could increase the amount of basic state pension paid to some existing pensioners and its effect for those reaching state pension age from 2010 would be similar to that of Clause 1, and would therefore make it unnecessary. However, I should say to noble Lords that while there is admirable intent behind the idea of retrospection, we should be aware that such an amendment would not be affordable and would not necessarily achieve improved outcomes for all. The cost of introducing the proposals for all pensioners is extremely high: at least £1 billion in 2010. The noble Baroness, Lady Greengross, asked why we do not use the savings from the abolition of DC contracting out to pay for it. Over recent months, we have seen a number of references to the so-called savings from the rebate being used.
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- Lord SkelmersdaleConservative
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- Before the noble Lord, Lord Oakeshott, and the noble Baroness decide whether to pursue this matter, I very gently invite the Minister to consider the fact that it is inappropriate to use the phrase “A-day” in connection with this Bill. “A-day” has a particular connotation in pensions’ activities, and one in which the Government did not come out covered in glory. Can we please use a different phrase?
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- Lord McKenzie of LutonLabour
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- The point is noted. I will ensure that my notes are correspondingly changed.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- I thank the Minister for his reply and those who have spoken with varying degrees of sympathy on our amendment. I am bound to say that the more I listened to the Minister’s reply to the noble Baroness, Lady Greengross, the more sympathetic I became to her amendment and the less persuaded I was by the excuses. The Minister is rather going in for overkill. If it is not practical because of computer problems—and I hear the noble Lord, Lord Skelmersdale—to do it, that is an end of the matter. The cost issue is neither here nor there if it cannot be done. He cannot have it both ways. He should decide which the answer is.
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- Lord McKenzie of LutonLabour
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- Both are true. It is not affordable, and, even if it were, it would not be practical to do it at the date the noble Lord suggests. Both are true. There is nothing wrong with that.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- As a matter of policy, if the Government are not prepared to spend the money on it they should say so clearly. It is rather academic whether in practice it could be done if you are not prepared to spend the money on it. I sympathise with the amendment of the noble Lord, Lord Skelmersdale, and if he wishes to press that further in due course we will support him. This highlights the complications that are inevitable when one tries to draw a line that is exceptionally difficult to draw in an increasingly threadbare and broken down contribution system, which is, frankly, well past its sell-by date. Before I withdraw the amendment, will the Minister be a little more specific about the cost? He quoted £150 million in 2008 and £150 million in 2009, and said that that would last well into the longer term. I think that the cost begins to run off fairly quickly through the teens; I wonder whether he could give us a little more information.
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- Lord McKenzie of LutonLabour
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- From recollection—I will check my notes—I thought that it ran through to something like 2030, but I will come back to the noble Lord on that. It is quite a significant run.
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- Baroness GreengrossCrossbench
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- I took quite a lot of encouragement from the Minister, because he responded quite warmly to my suggestions. I simply implore him to look again at the costs involved, before we come back to the matter on Report, to see whether there is anything that he can do. He did speak very encouragingly, and I hope that he will take the message away and reconsider the matter.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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Baroness Thomas of WinchesterLiberal Democrat- Quote
- moved Amendment No. 2:
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Baroness Hollis of HeighamLabour- Quote
- I support Amendment No. 2 and will speak to Amendment No. 3. Both seek to address the problem of people who work beyond state pension age but have incomplete records. Who are those people likely to be? They will obviously be anyone with an incomplete BSP. Currently, only 25 per cent or so of women reach retirement age with a full BSP in their own right, as opposed to drawing on their husband’s contributions. Anyone—man or woman—with an incomplete second state pension would also benefit. Many women are partnered with men a couple of years older who would expect to continue to work until they are 65. A woman may therefore wish to continue working for a couple more years until they can retire together and therefore may want the opportunity to continue to build her pension. If, under current law, her breaks in record were within the past six years, she could buy added years under voluntary class 3 contributions. If they were, say, 10, 15 or 20 years ago, she could not. In any case, she would not be allowed to buy S2P and as, once even the 30-year rule for BSP is in place, she would still need a minimum of 43 years to get S2P full accrual, she may decide that a payment, for example, of 11 per cent on her earnings above the primary earnings threshold is a prudent investment, not just for her BSP but to get the additional £1.50 a year per year accrual value of S2P. We say that we want to encourage women to work longer, and the pension age is being raised to 65. We say that we want to encourage women to build pensions of their own and to enjoy S2P as well as BSP, yet we do not allow them to do it. Why on Earth not? I may be quite wrong on this, but I suspect that my noble friend may suggest two arguments. First, he may suggest that by deferring her BSP the added increments a woman gains will outweigh her losses on her incomplete record, but that is to compare oranges with apples. Why should the one be offset against the other? Why should she not both build a full pension and enjoy the increments if she defers? My noble friend may also suggest—certainly, it was an argument in the other place—that this provision would make a woman a less attractive employment option for employers, so it is kinder not to allow her this choice. Of course, it would be permissive and it is a judgment that she, rather than the state, could and should make for herself. In any case, why should employers get a woman’s labour on the cheap? Why should they save on their national insurance bill, which they would have to pay for anyone else, at the cost of a woman building a more adequate retirement income? Once pension age has been equalised, employers would have no such choice for those years between 60 and 65. They would have to pay the rate, including national insurance, for the job. I point out to my noble friend that the current system is, again, to some degree, unfair to women. A man may retire at 60, play golf and be given freebies—over and beyond any golf cups or caps—of auto credits. We, the state, give a man free contributions towards BSP between the ages of 60 to 65 on his state pension, while he plays golf. However, a woman admittedly can draw her pension from 60 years old, but she is not allowed to pay for contributions of her own even though her financial need may be far greater than a man’s. If we support the principle of extended working lives; if we support the principle of no discrimination against older women; if we support the principle of encouraging people, especially the low paid, to build their own pensions; and if we support the principle of encouraging people to avoid needing to turn to means-tested benefits in later age, I hope the Government and the Committee will support an amendment like this.
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Baroness Turner of CamdenLabour- Quote
- I support these amendments and wish to draw attention to the briefing that I have received from the Equal Opportunities Commission. It points out that greater support for the over-45s is needed because many are still at risk of not getting even a full BSP in their own right. It points out that women’s entitlement to BSP would be increased dramatically by the Bill’s proposal to reduce the number of qualifying years from 39 to 30. Nevertheless, there will still remain women in the older age groups who will miss out on getting a full BSP. The EOC advocates, therefore, greater flexibility, as envisaged in this amendment, to enable women to buy into a full BSP by allowing them to make extra contributions if they are able to do so once they have reached what, perhaps, would be normal retirement age. By paying the extra money, they will eventually qualify for a larger pension. This is worthy of support and I hope that the Government will feel likewise.
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- Lord SkelmersdaleConservative
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- I have some sympathy with the amendments in this group, but many of the arguments of the noble Baroness, Lady Hollis, apply to the next amendment, so I was surprised to see that all the amendments had not been grouped together. Be that as it may, I have some sympathy with the proposal. The Government are rightly trying to encourage people to take more control over their pension pots by introducing measures such as a reduction in the number of years that NICs must be paid and the extension of contribution credits to make it considerably easier for people to work towards a full state pension before retirement age. As has been pointed out by the noble Lord and the noble Baronesses, these amendments go further than the Bill currently allows. My concerns rest largely on questions of both cost and feasibility. Allowing people over the state pension age to continue to top up their pension pots would be a considerable spending commitment because what comes in and what goes out are of a vastly different magnitude. Members on these Benches cannot support the amendments because there simply has not been enough research or analysis on the costs and benefits of these suggestions. Were there to be, I might well take a different line. It would be irresponsible to put into this Bill a policy which has not been fully thought through. However, I hope that the Government will look seriously at these amendments and devote some time to fully costing them, then weighing those costs against the benefits that would come from encouraging older workers to stay in work, a matter on which I shall dwell shortly. Until then, I cannot support these amendments.
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- Baroness Hollis of HeighamLabour
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- Perhaps I may help the noble Lord. I presume that he supports raising the basic state pension retirement age to 65; therefore, if a woman stays in work between 60 and 65 she will be paying NICs at 11 per cent a year together with the employer’s contribution above the primary earning threshold. All Amendment No. 3 suggests is that she should be able to do that if she is in work between the ages of 60 and 65, even though she is not drawing her basic state pension. I do not see the cost issue here. That is exactly where the policies of all parties are going; that is, to draw a pension at the age of 65 and, as a result, to pay in NICs for an additional five years to fund both the BSP and the S2P. I accept that there is a phasing issue, but I do not understand the noble Lord’s point about costs.
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- Lord SkelmersdaleConservative
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- The difference is that the first has been costed and the second—so far as I know, but I am sure the Minister is about to tell us—has not.
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- Lord McKenzie of LutonLabour
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- This group of amendments concerns the payment of extra national insurance contributions after state pension age as a means of boosting state pension entitlements where necessary. I thank the noble Baroness, Lady Thomas of Winchester, and my noble friend Lady Hollis for raising this important issue. I shall deal first with the amendment of the noble Baroness, Lady Thomas. The raison d’être for our reforms to the basic state pension is to maximise the number of people who retire on a full pension. The amendment is therefore entirely compatible with the intention behind Clause 1. However, no doubt the noble Baroness has sensed that there is a “but” in my response, and indeed here it is: it is simply unavoidable that a small minority of people will reach state pension age without the requisite 30 years of contributions or credits for a full basic state pension. We know that in 2010 around 75 per cent of women and more than 95 per cent of men will retire with a full basic state pension, and by 2025 the proportion retiring with a full pension will increase to more than 90 per cent for both men and women. Therefore we must consider very carefully whether any remedy is proportionate to the problem it is seeking to alleviate. The Government are of the view that the amendment is not proportionate because of the potential difficulties it would cause to employers, particularly small employers. Currently, employers operate on the simple rule that they do not deduct national insurance contributions from any of their employees who have reached state pension age. Therefore, let us consider the detail of the amendment. It would allow anyone who reaches pension age without the requisite 30 years for full basic state pension entitlement to continue paying contributions provided he or she does not start to draw his or her pension. So what would this mean from the employer’s perspective? It is, quite simply, a recipe for confusion. It brings into the whole tax and national insurance contributions equation the concept of voluntary deductions. This would be complicated enough if the option were available to all people working past state pension age; worse if it were to be restricted to the small minority—around 10 per cent by 2025—of individuals who would not have otherwise accrued full basic state pension rights; and far worse if the period for which the option was available were to vary from individual to individual. This is the reality of what the noble Baroness is proposing. For each employee over pension age, the employer would need to know whether they were eligible to pay contributions; if so, whether they wanted to pay contributions; if so, whether they wanted to do so for all of the tax years for which they were eligible to pay, or for only one of them, or for some of them; and, indeed, whether they wanted to pay throughout a tax year or only sufficient within a tax year to gain enough credit. As the amount payable by way of contributions would depend on the individual’s earnings, the “to pay or not to pay” decision may not be as straightforward as it might appear at first glance. For a person earning, say, £120 a week, the amount payable by way of contributions for a full tax year would currently be around £115, but for a person earning around £35,000 a year, it would be around £3,250. So around £3 a week for life for £115 would, I am sure, generally be an attractive proposition; putting the price tag up to £3,250 would make it far less so. The complexities inherent in the amendment, particularly for employers, make it simply unworkable, in our view. I hope that I have explained the reasons why we do not agree with the intention or the substance behind the amendment. The amendment of my noble friend Lady Hollis occupies much the same territory as the amendment of the noble Baroness, Lady Thomas, although there are two essential differences. First, it restricts the right to pay contributions to people who work past state pension age; but, secondly, this right would not be restricted to those who defer their state pension. I have already explained the potential difficulties for employers raised by the first of these differences and I do not intend to labour the point. I would like to make some observations on the second difference; namely, that under the terms of the amendment people would be able to pay contributions and draw their state pension simultaneously. The reason people would be paying the contributions would be to increase their state pension. This raises an interesting question about the point at which the increased entitlement would crystallise. There could be, I suggest, three options. The first is at the point the person has paid sufficient contributions to make that tax year a “qualifying year”, which would be when they had paid contributions on earnings of around £4,500. However, when this occurs depends on how much the individual earns. The second is at the end of the tax year in respect of which contributions have been paid. The third is only at the point the person stops paying national insurance contributions. The first option would entail the employer or the employee keeping a cumulative total of the earnings on which contributions have been paid and notifying the Pension Service at the point a qualifying year had been achieved. The second option seems more practicable. However, there is inevitably a time lag between the end of the tax year and the contributions being posted to the person’s national insurance account. The only way of avoiding delays in getting the enhanced pension into payment would be for the employer to send details of the earnings directly to the Pension Service. This would be in addition to the normal end-of-year return to HMRC. The third option would avoid annual recalculations of the individual’s pension entitlement, but does not seem particularly equitable. I am not saying that it is impossible to sort out these practical difficulties, but they are potential problems. I come back to the point I made in response to the amendment of the noble Baroness, Lady Thomas, about whether the solution is proportionate to the problems. My contention is that in the case of the amendment it simply is not. Perhaps I may pick up on a couple of points. My noble friend Lady Hollis referred to auto credits—the freebie for the golf course. These, of course, will be phased out for men from 2010 in line with the rise in the women’s pension age. It is a transitional issue and will disappear. As regards whether employers are getting people on the cheap, employers continue to pay national insurance contributions where an employee is over pension age. The exemption applies only to the employee’s share of national insurance contributions. There are one or two other points we ought perhaps to reflect upon if we are going to complete the intellectual analysis. It is suggested that the contributions should generate entitlement to both the basic pension and the state second pension. Would it therefore be equitable to restrict the option to pay national insurance contributions to those who do not qualify for a full basic pension? I suspect the answer is no, given those people who, prior to the introduction of S2P in 2002, were out of the labour market because of caring responsibilities or were low earners who will have accrued little or nothing under SERPS. If that were the case, however, should the option be available to everyone working past pension age, or only to those whose SERPS and/or S2P accruals are below de minimis? If so, how would those be aligned? If people in work were to have the option to pay contributions past pension age, would it be equitable to exclude those who do not work but carry on their caring responsibilities after pension age from accruing further pension entitlement? We would be changing a fundamental part of the Bill. Again, the answer is no, on the basis that the individual concerned could reasonably argue that, were it not for their role as a carer, they would continue in work. That raises a supplementary question, though: up to what age is that a reasonable premise? Would it be 70, 75 or 80? I do not wish to labour the point, but we need to be mindful that, although on the face of it this may seem a pretty straightforward and reasonable proposition, it would in reality require significant re-engineering of quite a few parts of the state pension machinery. For those reasons, the Government do not support it.
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- Baroness Thomas of WinchesterLiberal Democrat
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- I thank the Minister for that reply, and others who have spoken in this short debate. It should be pointed out that the amendment is supported by the Equal Opportunities Commission, Help the Aged, Age Concern and many other groups. The suggestion from the noble Lord, Lord Skelmersdale, that research should be done on this issue is a good one. Does the Minister agree that some research by his department would be a good idea, as this measure would stop so many women being condemned to a life of means-testing in retirement?
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- Lord McKenzie of LutonLabour
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- Of course the department will keep all these matters under review, but the key purpose of the Bill is to prevent what the noble Baroness has just asserted the position to be. It is particularly to address equity for women and to ensure that they have fewer years through which they can acquire a full basic state pension and all the extra credits that come from being in receipt of child benefit or other caring responsibilities, which we are going to discuss shortly.
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- Baroness Hollis of HeighamLabour
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- On Amendment No. 3, my noble friend made a fair point that I need to reflect on about carers and the read-across to those who are not in work. There remains a basic problem, however. He and I have friends in common, not far from this Chamber, who have incomplete records, are working past 60 and would like to pay their way and build up a complete record, but are not allowed to do so. That is the simple issue, and it seems unreasonable if we are trying to encourage people to have extended working lives. I am afraid that I do not really understand my noble friend’s point about complexity for employers. If someone is working for an employer at 59 and continues at 60 or 61, the employer carries on doing exactly what he is doing and no change will occur.
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- Lord McKenzie of LutonLabour
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- That is not necessarily the case; it is only if the individual wishes to continue to contribute. That raises the questions of whether they wish to contribute for every tax year for which they remain in employment and whether they wish to contribute for the complete tax year, which depends on the level of their earnings. There is a series of quite complicated issues and records that employers would have to keep, which they do not have to keep at the moment.
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- Baroness Hollis of HeighamLabour
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- I suspect that in that case, if we are assuming a retirement age of 60, a deficiency notice would be sent out by NIRS2—assuming that the computer system was working properly—to a person of 59, telling them what their shortfall was. On that basis, the employee would be able to make an informed decision about whether they wished, needed to or would continue to pay NICs. I can see no practical problems associated with it if one has the wish to do so. Deficiency notices are sent out now; such a notice would be the basis of employees deciding whether to continue to pay NICs. If they felt they should do so, they could; if they felt it was not necessary, they need not. Either way, the employer is unaffected. As far as I understand it, there is no administrative roadblock to having such a provision. I accept that there is an issue about read-across to carers who are not in the labour market so do not have an employer matching contributions. But for the person in the labour market, whom the amendment seeks to address, I see no such problem. As for the phrase “while entitled” in Amendment No. 3, it was chosen to suggest that there was an entitlement, as opposed to an act of drawing the basic state pension. That is because the age at which women draw the basic state pension will change over time. I did not try to pin that down in the amendment. It is simply a statement of eligibility; while a woman—or a man, come to that—might be eligible for a basic state pension, they could choose not to draw it because they are in work. They would therefore voluntarily pay a full, proper, costed stamp—which, for the rest of us, is assumed to pay our way for S2P—and, as a result, build up a decent enough record which, according to the Government’s regulatory impact assessment and the subsequent figures produced by the Minister for Pensions, would float them off means-tested benefits in the future. If we do not do things like this, some people—maybe not very many—will need means-tested benefits further down the line because they were denied a responsibility they were willing to shoulder of building up a pension in their own right. Obviously I shall withdraw the amendment at this stage; I shall reflect on the read-across to carers, but I do not really believe that my noble friend has challenged the core assumption that we are talking about somebody in work seeking to continue to build on their pension while not drawing their current pension. That case remains valid, but for the moment, I beg leave to withdraw the amendment. Amendment, by leave, withdrawn. [Amendment No. 3 not moved.]
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- moved Amendment No. 4:
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- Baroness Thomas of WinchesterLiberal Democrat
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- We strongly support this amendment, which, as the noble Baroness, Lady Hollis, said, allows greater flexibility over voluntary backdated NICs to allow workers to fill in gaps in their NI record for any period of their working life up to a total of nine years instead of the much more limited current arrangement whereby some contribution arrears can be paid within six years. This will be a simple but very important reform which could be brought in before the 2010 reforms to allow women not gaining from the reduction to 30 qualifying years to increase their entitlement to both pensions. We have to face it: those at the beginning or even in the middle of their working lives simply do not look forward clearly to their retirement years. When and if they do review their pension entitlement, they may find that they have a gap of several years but are too late to buy added years within the current rules. This is a much more modest amendment than the previous one. For that very reason, I hope that the Government will be able to accept it.
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Baroness Howe of IdlicoteCrossbench- Quote
- I support the amendment. I have listened with considerable interest to all the reasons why some of the previous amendments might not be wholly acceptable, but this amendment seems to contain some flexibility and some choice. As we heard, it is strongly supported by the Equal Opportunities Commission and other organisations. The fact that it could be brought in before 2010 is crucially important. I, too, hope very much that the Government will show some flexibility and accept the amendment.
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- Baroness GreengrossCrossbench
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- I add my support to the amendment. As the noble Baroness, Lady Hollis, made clear in introducing it, the amendment would rectify the situation of many women, many of whom—as people like me, with my experience, know very well—would be very happy to pay for those extra years. They resent the fact that they were not given advice which would have made it possible to do this at an earlier stage so that they could have the full entitlement. Many of the organisations which have been briefing us support a provision enabling these women to buy those added years in a fairly simple and straightforward way. With such support for the amendment, the Committee should also support it. I wholly recommend it, and I hope that the Minister will consider supporting it.
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- Lord SkelmersdaleConservative
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- I am afraid that I am not persuaded by the eloquence of the noble Baroness, Lady Hollis. I noted first, as I suspect that she and I will have arguments about costs throughout the proceedings on the Bill, that she described the figures she received from the department this morning as “modest”. I do not have the advantage of seeing those figures—though I am sure the Minister will be able to reveal them in due course—but I wonder just how modest is “modest”. Secondly, the noble Baroness said that even between 5 and 10 per cent of those retiring under the 30-year rule would not have a full contribution record. Some of that 5 to 10 per cent—in other words, about 1 million people—would have the opportunity of using the current system of paying the past six years of NICs. Therefore, you cannot count the entire 1 million or so people to whom the noble Baroness referred. I hope the Minister will be able to cover that in his response.
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- Baroness Hollis of HeighamLabour
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- As I say, although I tabled the Question several weeks ago, I picked up the Answer only today, so I have not had time to digest and fully work through the department’s figures. However, they suggest that, depending on the assumptions, there would be a diminishing profit to the Treasury for about three years and an increasing cost thereafter. The figures were for only 2007 to 2009 and covered six years rather than nine. They could not, for example, take account of the problem of those who might not wish to buy those years, calculate what implications and interaction there would be for those who are married or calculate the implication of the de minimis rule. That is why the figures cannot, by definition, be robust, and I do not blame the department for that at all. I did not give precise figures because there are too many conditionalities attached to them to be able to calculate them. However, I can give figures for the individual. I emphasise that until now the Treasury has found it absolutely fine to have this provision for about 250,000 people a year who know how to make good their defaults in the system. As we do not know how many women who are not doing so will take advantage of that—the department, perfectly legitimately, cannot tell us—we cannot give precise costs. All we can suggest is that there will be a modest profit to start with and a modest loss thereafter. However, it is certainly affordable for the individual woman—or man come to that—and, as I say, already exists for the rest of us.
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Lord FowlerCrossbench- Quote
- I have listened to the debate and—I had better say this cautiously—found myself very much persuaded by what the noble Baroness, Lady Hollis, said. There is a slight, very unusual, division between myself and my noble friend, but certainly not on a grammar school scale at this stage. Buying back is an extremely good idea which should be encouraged. I am not sure that it adds to the noble Baroness’s advocacy of the citizen’s pension because I do not think that it fits in with that. However, if we continue with the contributory principle, it would certainly fit in. We do not have an insurance principle; we have a contributory principle. As I understand the Government’s policy, we shall continue with the contributory principle. Therefore, one wants to make that contributory principle and its practice as flexible as one conceivably can. It is common sense to follow what the noble Baroness, Lady Hollis, suggested. I should point out that buying back takes place elsewhere in the public sector in the occupational area. For example, Members of Parliament are allowed to buy back although none of us former Members, myself included, can remember how many years we can go back. However, I think you will find that it is a little more than the six years that the Government specify. I have not yet heard a good reason why this amendment should be rejected but I have heard very good reasons why we should accept it. It would certainly benefit women to a very large extent. It may not be correctly drafted but I hope that the Government will at least accept the principle of it.
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Baroness Dean of Thornton-le-FyldeLabour- Quote
- My name is added to the amendment. I can think of no reason why I should not have added my name to it because it does not introduce any new principle. It would enable what I think we are all trying to move towards; namely, independence for women in retirement. If they have the funds later in life to buy back these years under the principle which has been established elsewhere and, indeed, in the state system, I cannot see any reason why that cannot be considered. I find it difficult to understand the argument that it is not affordable. We do not even have the full figures in front of us. I do not see any objection to the measure in principle and I am unconvinced that there is any financial objection. I am certainly convinced that it would help women to be independent in retirement, which I hope this Bill is striving for; in fact, I am sure that it is.
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- Lord McKenzie of LutonLabour
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- I thank my noble friend for raising this important issue and for the debate that has taken place. She touches again on the cliff edge, which we debated earlier. We acknowledged that if these matters could be phased in gently and still enhance the position of many women, that would be worth doing. The cliff edge arises because we have determined to introduce the measure in 2010 because that is the way to maximise the benefit, particularly for women. The group of amendments that we just debated concerned the payment of national insurance contributions after pension age. This amendment seeks to give greater flexibility over the payment of voluntary contributions to fill gaps in the working life when the contributor was not working for whatever reason. It would, in effect, remove the current time limit for paying voluntary contributions and allow people to wait until the very last minute—just before claiming their state pension—to make up missing years. That has the support of the EOC, and it would especially help women to achieve a full pension. However, the amendment would only benefit people reaching state pension age after 5 April 2010. It would not therefore help those who do not benefit from the provisions in this Bill. I do not believe that was intended, but that is the effect of the amendment. Time limits for payment of voluntary contributions are dealt with by regulations made under Section 13 of the Social Security Contributions and Benefits Act 1992, and noble Lords may be aware that the responsibility rests with HM Treasury. By way of background, the existing rules for paying voluntary contributions allow contributors up to six years to pay the voluntary contributions due in a particular tax year, although in certain circumstances the time limit can be extended. The time limits were extended from two years to six years for tax years from 1982-83 onwards. As my noble friend identified, there are extended time limits for the 1996-97 to 2001-02 years. Contributors have until 5 April 2009, or 5 April 2010 if they reached pension age before 24 October 2004, to pay voluntary contributions for those years. That extension was introduced because from the 1996-97 year the then Contributions Agency suspended its annual deficiency notices exercise. That exercise is used to notify contributors that a tax year is not a qualifying year for benefit purposes and to give them the opportunity to pay voluntary contributions. When it was reinstated, the time limits were extended to allow contributors at least the amount of time to pay that they would have had if the notices had been issued at the correct time. The current rules are already widely drawn and allow those over state pension age to pay voluntary contributions to fill gaps in their contribution record. For example, a contributor reaching state pension age today, who did not pay voluntary contributions in the 2006-07 tax year, would have until 5 April 2013 to pay those voluntary contributions, albeit at the voluntary contribution rate applicable in 2012-13. That gives those retiring the same wide degree of flexibility as someone yet to retire. We do not believe that it would be appropriate to remove the time limits for paying voluntary contributions. It would be incongruous to allow people unlimited time to pay voluntary contributions when those who are employed or self-employed have no choice about when they pay national insurance contributions. Time limits are an important feature of the “pay as you go” system of NICs, in that current payments of contributions pay for current claims to contributory benefits. The amendment would distort that feature by incentivising delayed payment. We are not aware of any evidence that the time limits are too restrictive for those who generally pay voluntary contributions. Also, we would not wish to create an incentive for people to delay paying voluntary contributions until the last minute, because it would create additional complexity and add to the costs of administering those arrangements. The amendment restricts to nine the number of years for which voluntary contributions can be paid over a working life by someone just about to claim their pension. I am not sure whether that was intended. That would be less generous than the current arrangement, which imposes no restriction on the number of years for which an eligible contributor can pay voluntary contributions, subject to the relevant time limits. You can pay class 3 contributions for 30 years so long as you pay them in each case within the six-year time limit. Such a restriction would add complexity to the current arrangement, and it would ill serve the very people whom my noble friend seeks most to help. In conclusion, the existing time limits for payment of voluntary contributions are both appropriate and necessary. However, I recognise that some people would still not achieve a full basic state pension, despite the more generous arrangements in the Bill. But to allow them to make up missing years at the point when they are due to retire would require them to make complex financial decisions. For example, it might not be sensible for a married woman with a smaller basic state pension based on her own national insurance contributions to pay voluntary contributions when she reaches state pension age if she would be entitled to a higher pension based on her husband’s national insurance record. I understand the concerns that have been raised and assure noble Lords that we will keep under review the current arrangements for paying voluntary contributions. I remind noble Lords that changes to the time limit can be made by secondary legislation if they are deemed to be necessary.
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- Baroness Hollis of HeighamLabour
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- Given the figures that have emerged today regarding the net additional cost of the gap between the price and the value of those increments for additional people who might come in—there are many less-than-robust assumptions about who might come in, and that is why the figures are difficult—what is the current deficit? At the moment, people are paying £161 million for 250,000 “people years” of class 3 contributions. What would the figures be if one applied the same arithmetic to the current arrangements?
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- Lord McKenzie of LutonLabour
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- I do not have those figures to hand, but will certainly provide them to my noble friend. I was about to say that many caveats surround the figures that I have outlined, as she recognised. We should be cautious about calling such costs “modest”, quite apart from the principles that would be involved in going down the path that we have suggested. For reasons of cost and practicality, on reflection, my noble friend would recognise that the precise drafting of her amendment does not achieve what she seeks. I encourage her to withdraw it.
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- Baroness Hollis of HeighamLabour
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- I thank my noble friend for the detail of his reply, which I will work on. He made two points—one on the complexity and impropriety of delay and of being able to pay at any stage, and another point regarding costs. We will return to the issue of costs, but when I asked for the figures, I was told that they were not available—although some of them have become available on the day of the Committee. It is difficult to be certain about what is being compared with what. I hope that my noble friend will do the work for me on this, because I am not sure that I can. I have said that I would be perfectly willing to discover what the cost of a class 3 contribution would have to be to make it cost effective, both for existing holders, who, according to my noble friend, are getting a freebie ride—the better educated, students and so on—and for women who might have even greater need than at present. So there is a bundle of issues associated with cost that we must scratch away at. My noble friend’s argument regarding time limits hinged on the question of delay. For the life of me, I do not understand the problem. My noble friend said that the amendment would incentivise delayed payments. Why does delay matter? At the moment, if you are in work, you pay your contributions as you go. If you know about it, you pay at the time. If you wish, you can pay for your whole life, as long as you do that within every six-year period, as my noble friend said. I do not understand why delay is even faintly relevant. Apparently you can buy 30 years of class 3 contributions at enormous cost to the Exchequer if you do it within six years, but we cannot, within nine years, apply the contributory principle to women who might come within the range of means testing at the end of their working lives, as the noble Lord, Lord Fowler, argued. I am sorry, but I am baffled by my noble friend’s argument on that. Perhaps he can help me further.
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- Lord McKenzie of LutonLabour
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- I will try to help my noble friend. The issue of timing is important. People who are employed pay national insurance as they go along. The opportunity to pay class 3 contributions for an extended period until six years after the tax year in question gives some leeway, but one has to ask whether it is fair when you compare someone who pays their pension contribution on day one in each pay period with someone who says, “I will store up my class 3 voluntary contributions and take a call on it at the end of my working life when I am about to retire”. There is a time cost to money and it seems to me that if we encouraged people to delay making their class 3 contributions until the last minute, that would have an impact on the National Insurance Fund. The scheme has a pay-as-you-go basis, as my noble friend is aware, and there are cost implications to that.
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- Lord FowlerCrossbench
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- I am not sure whose speech I am interrupting but would the Minister have the same objection if, instead of “six years”, one simply inserted “nine years”, without the other parts of the noble Baroness’s proposition?
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- Lord McKenzie of LutonLabour
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- If the noble Lord is asking whether the Government would support the idea of being able to pay nine years after a relevant year, then obviously that is not a proposition that we have considered. We have no costings on that, robust or otherwise, but, again, it would move us away from encouraging people to pay on a reasonably expeditious basis. It seems to me that six years allows a reasonable amount of leeway but that nine years moves further away from that principle.
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- Baroness Hollis of HeighamLabour
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- I shall withdraw the amendment but I still do not understand why payments have to be expeditious. Apparently they can be made for 30 years up to six years after the event. This cannot be an issue of cost. It is said that it is unfair to allow people to make extra contributions because of the additional cost to the rest of us, but we already allow 250,000 people years to be bought, often by students and so on who go on to be higher-rate taxpayers. However, apparently we are not willing to do this for women. I cannot bottom out my noble friend’s argument. Why is it bad to make the payments at the end of your working life but good if you do it in the middle of your working life? Some women may know only at the end of their working life whether they need those extra years. If you cannot predict what you are going to need until you reach retirement age, you will be penalised, whereas a student, say, or someone who works all their life in a profession can predict what they are going to get and they can make the contributions. I am still completely baffled by why delayed payments are not permitted. Provided that the cost is right, what is fair for the gander should be fair for the goose.
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- Lord McKenzie of LutonLabour
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- Under the current system, if someone has been in employment for a number of years or, if working abroad, has been out of the labour market for a number of years and decides to make voluntary contributions, he must do so within six years of the tax year in question. Under my noble friend’s proposition, he would not have to make the payment at that time but would simply store it up and take a view of the situation in 20, 30 or 40 years’ time. My point is that there have to be timely payments into the National Insurance Fund.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- As we are in Committee, perhaps I may ask a question. I have listened to the debate and, in particular, to the noble Baroness, Lady Hollis. Does the Minister agree that here we are talking about a very male-based contribution model? Inherently, many women’s lives are less predictable, so the point that the noble Baroness is making is very valid.
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- Lord McKenzie of LutonLabour
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- That may be right. The current system, which we are about to change, is very male-oriented. My noble friend has made that point with great conviction during Second Reading and on previous occasions, but we are changing the system. Under the Bill—with all the credits that are available for people with caring responsibilities and with the truncated period of 30 years to get to full basic state pension—there is considerably more flexibility in a working life. It does not seem unreasonable to hold to the view that you can still make up contributions but that you must do so within six years. There may well be a case for looking at whether the deficiency notice provides sufficient information for people to make the right sort of judgments. However, if we go down the path of saying that people who want to make a class 3 contribution to improve their pension outcome need not do so until the end of their working life when they are about to get their state pension or, indeed, until possibly six years after that, that will change the landscape.
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- Lord SkelmersdaleConservative
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- It seems to me that we are departing from a principle with which I thought we all agreed: namely, the contributory principle. At the moment, the only dent in that contributory principle is the six years relating to voluntary contributions. Extending that further will increase the debt until eventually it becomes a gaping hole, will it not?
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- Baroness Hollis of HeighamLabour
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- The problem is that the contributory principle is based on a Beveridge-type principle, which, given the society at the time, was the male model of working life. However, it has produced many excluded groups. Governments of all complexions, very decently, have tried to bring more and more groups within the contributory system—since 1978 we have had HRP, disability benefits, various credits and the like and now this Bill. We can no longer simply tie this in to a pay-as-you-go system in a mechanical way—you pay it at a point in time. The six-year rule exists to help another group: for example, students and those who work abroad temporarily. There are still groups—these amendments seek to address them—who will remain outside any contributory system, yet most of us would regard their lives as valuable and we would want to see them brought within the system so that they can enjoy as full and as complete a basic state pension as possible. This amendment would allow head space for that. Rather than having a series of one-off solutions—multiple jobs, grandparents, whatever—producing half a dozen different possible solutions, we can seek to do it this way. If we do not, I can promise my noble friend that, in a couple of years, someone else will return with another Bill trying to make good further deficiencies in a contributory principle that has been stretched and stretched. This is a contributory system that you pay at the end of your life to make good shortfalls. I am still completely baffled why a delayed payment is inferior and bad whereas a payment within the six years is good. I find that incomprehensible. I am very grateful for the support from all Benches for the amendment. As my noble friend will expect, I shall return to the matter on Report in the hope that he can give me better news and more encouragement than he has been able to give today. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn. Clause 1 agreed to. [Amendment No. 5 not moved.] Clause 2 agreed to. [Amendment No. 6 not moved.] Clause 3 [Contributions credits for relevant parents and carers]:
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- Lord SkelmersdaleConservative
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- moved Amendment No. 7:
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- Baroness Thomas of WinchesterLiberal Democrat
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- I shall speak to Amendment No. 8. I am fully aware that it is pushing at an open door. After Second Reading, the Minister sent a helpful letter setting out how the new policy of carer’s credits for those caring for at least 20 hours a week would work in the light of the agreement now reached that if carers looked after those not in receipt of certain benefits, they could still qualify if certified as carrying out this important work by a health or social care professional. Not only will this new right build up entitlement to the basic state pension, it will also increase the number of people accruing entitlement to the second state pension. In the letter, the Minister reiterates the announcement made by James Purnell, the Minister of State for Pensions Reforms, and goes on to say: “You may wish to note that he”— Mr Purnell— “also stated that we would explore how health and social care professionals will be involved in the certification process for the carer’s credit through the review of the 1999 national carer’s strategy”. I gather that that is due to be completed by the end of this year, after which the relevant regulations are expected to be laid. This all sounds fine, but we need some cast-iron guarantees. The word “explore” and the phrase, “due to be completed by the end of the year”, could lead to drift, particularly as there is a little time in hand. Can the Minister assure the Committee that there will be no foot-dragging in the area of deciding exactly who can qualify as a carer and who can certify a carer? I am certainly not ungrateful for the way that the Government have moved on this matter, but we need a few more certainties on the record.
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- Baroness Hollis of HeighamLabour
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- Are the other amendments in this group—Amendments Nos. 12 and 13—going to be moved?
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- Lord SkelmersdaleConservative
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- There are no other amendments in this group. We are discussing Amendments Nos. 7 and 8.
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- Baroness Hollis of HeighamLabour
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- My grouping list includes Amendments Nos. 12 and 13 in this group. If they have been ungrouped, I stand to be corrected. The Committee showed me great indulgence on the previous amendment, so I shall very briefly say that I support this amendment. However, the difficulty is that this provision remains very fluid. None of us doubts the intention and good will of the Government in this respect, but it depends on the carer’s strategy coming through and being embodied in regulation. Indeed, it depends on Ministers in the department—who may or may not be the same people after any reshuffle—being persuaded of the same position. We have seen the Government desirably change their views on this during Committee, and I would like to see that embedded in the Bill. However, I accept that this may, more appropriately, be a matter for regulation, so can my noble friend show us the draft regulations that are due to be published within, say, six months of the Bill, so that we can at least have the assurance that the intention is covered if not in the Bill, in regulations? If my noble friend feels unable to accept the amendment as currently described, can she at least help us on that?
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Baroness Morgan of DrefelinLabour- Quote
- I am delighted to respond positively to the debate on behalf of the Government. This is not a personal response, so I hope that it will be a long-lasting response. Clause 3 has the effect of replacing home responsibilities protection with a new more generous system of contributions credits for carers. Before turning to the amendments, I shall set out how the provisions in the clause achieve that. It is important to take a few moments to do so for the reasons raised by the noble Baronesses. The pensions system has recognised the valuable contribution of full-time carers since the mid-1970s. Home responsibilities protection—or HRP, as it is commonly known and has been referred to today—recognises three broad groups of carer: first, those undertaking a parenting role, including parents awarded child benefit for a child under 16; secondly, registered foster carers since 2003; and, finally, those caring for severely disabled people. Although at first HRP was a ground-breaking recognition of other ways of contributing to society alongside working, aspects of it make carers less certain about the state provision they will get when they reach pension age. In order for HRP to protect someone's basic state pension, that person must be in one of these categories for a complete tax year, as has already been mentioned. For example, if a woman had a child in May and was subsequently awarded child benefit, from that point she would not necessarily qualify for HRP that year. HRP provisions would take effect from the following tax year, with each complete year of HRP reducing the number of qualifying years needed for a full basic state pension. HRP has worked well, but it is difficult for people to understand. Clause 3 will be much simpler. It introduces new contributions credits for relevant carers. And, as with all national insurance credits, they will be available to people from age 16—and I hope that offers some reassurance—until they reach state pension age. I shall speak more about 16 year-olds in a minute. Moving to a system of credits will address the more negative aspects of HRP. People can combine part years spent caring with time spent working, or some other credited activity, in order to accrue sufficient contribution credits for a qualifying year. Each qualifying year is recorded against the 30 needed for a full basic state pension, making the system simpler to understand. I turn to Amendment No. 7. There are three groups of carers—not so very different from those recognised under HRP—who will benefit from the contributions credits under Clause 3. These are set out in subsection (3) of the clause, the subsection that the noble Lord, Lord Skelmersdale, seeks to remove—although I appreciate his amendment is probing. The first and second groups are persons awarded child benefit for a child under the age of 12 and approved foster parents. The third category of carer is those “engaged in caring”, and the definition of this group will be set out in regulations. I shall explain more about this group and the approach we are taking. I wish to offer as much reassurance to the Committee as possible. The Government are very proud of this area and to be moving forward providing additional support for carers. Currently, HRP can be awarded to someone looking after a severely disabled person for at least 35 hours a week. However, very few people claim it. Only about 1 per cent of HRP is awarded for care of severely disabled people, as most people who provide this level of care receive credits through the carer’s allowance. However, we recognise that those providing at least 20 hours of care a week can be disadvantaged in the labour market. For this reason, the proposed regulations will ensure that anyone in this group will be able to claim the new carer’s credit. When we introduced the Bill, we stipulated in the accompanying delegated powers memorandum that the person or persons being cared for should be entitled to the attendance allowance, the middle or higher-rate care-component disability living allowance, or the constant care attendance allowance. We did this originally so that we could take a light-touch approach to determining entitlement to the credit, but we have listened to representations from a number of organisations and to the debate in another place. That is why my noble friend reiterated at Second Reading the Statement on the carer’s credit made by my honourable friend James Purnell, the Minister for Pensions Reform. To be absolutely clear, there will be two routes by which people will be eligible for the carer’s credit, and they will both be covered in the regulations. First, as I have stated, the carer’s credit will be available to those caring for at least 20 hours a week for one or more severely disabled people with certain qualifying benefits. Secondly—this is the important point—a person will be eligible for the carer’s credit if they are certified by a health or social care professional as caring for at least 20 hours a week, irrespective of whether they are caring for someone with or without benefit entitlement. Through this second route, we are providing even more flexibility to deal with the situation whereby the person being cared for is not entitled to one of the specified benefits or chooses not to claim it. In this case, the carer will get the carer’s credit if they are certified by the health or social care professional as caring for at least 20 hours a week. We plan to explore this process fully through the review of the national carer’s strategy, in which carers’ organisations are actively engaged. I stress that this is a consultation on how the process will work and not on whether the regulations will include this alternative route. This has been stated in the Commons and restated here on Second Reading, and I make these points for the record now. We do not believe that it is necessary to put a separate definition in the Bill to recognise those certified by health or social care professionals as caring for at least 20 hours a week, which Amendment No. 8, tabled by the noble Lord, Lord Oakeshott, seeks to do. The same effect will be achieved through the regulation-making power that is already set out. Importantly, the regulation-making power will give this and future Governments the flexibility to reflect the changing nature of care over time and the needs of an ageing population. I hope that I have been able to reassure noble Lords. The noble Lord, Lord Skelmersdale, made a point about child carers. I, too, recognise the enormously important role that young carers play. I should state for the record that children under the age of 16 who may receive the carer’s allowance will receive credits in the same way. Young adults of 16 and 17 also receive starter credits. I, too, believe very strongly that young adults of 16 and 17 should be advised of their entitlement and moved swiftly and confidently on to these credits. The Children Act has provisions for local authorities to pay particular attention to the needs of child carers and to their needs when they turn 16 and become young adults. That should be in place, particularly for children who are being treated as children in need. I hope that I have offered the reassurance that noble Lords seek, and that the noble Lord will withdraw his amendment.
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- Lord SkelmersdaleConservative
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- I, for one, never intended to press my amendment, but I think that there will be universal approval for the Minister’s speech. On my amendment, I am particularly glad to hear that carer credit will be available to young adults of immediately post school-leaving age. However, I am not sure that the local authority is the right body to tell them. If a young adult has been in receipt of care allowance previously, the department would be in a good position. If they have not been in receipt of such an allowance, it is rather difficult to think who would be the best person to advise them or to whom they should apply for advice. Perhaps the GP or the healthcare professional might be the appropriate person, but we can all think on that because there will be time before the regulations are laid before us. On whether the noble Baroness’s amendment should be in regulations or not, yes it should. Since everything else in this clause is being done by regulations, it is perfectly logical that this should be too. With those remarks of praise to the Minister, who I note is unisex because I called her the noble Lord a few minutes ago, I beg leave to withdraw the amendment. Amendment, by leave, withdrawn. [Amendment No. 8 not moved.]
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- Baroness Hollis of HeighamLabour
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- moved Amendment No. 9:
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- I pay tribute to the West Norfolk Women and Carers’ Pension Network, part of the Equal Opportunity Commission’s pensions network, for raising this important point on behalf of mothers and grandmothers. In her thoughtful speech, the noble Baroness, Lady Hollis, gave us some interesting statistics, and I have one or two more. The 41 per cent of women who work part time earn on average 41 per cent less per hour than men working full time. That gives us some idea of the gap. Further, parents in a weak labour-market position, such as unskilled workers, often find it harder to negotiate family-friendly working arrangements with employers and to find jobs that fit in with their parental responsibilities. Their bargaining power in the labour market is clearly not high. We agree with the West Norfolk Women and Carers’ Pension Network that more work needs to be undertaken nationally to discover the full effect of how grandparents miss out on state pension provision. Like us, the noble Baroness, Lady Hollis, supports a universal citizen’s pension, but to be honest, we are sceptical about whether this amendment is on the right side of the line of how far one should go down the route of introducing lots of individually tailored changes. That is what worries us. If I may put it this way, the more tweaking and complexity introduced to try to patch up this broken system, the more complicated it gets. On balance, and with reluctance, we feel that this is probably a complication too far. We would prefer to go for more universal amendments short of a citizen’s pension. However, I pay tribute to the pensions network for raising the issue. It is something we need to keep a close eye on. Finally, I was struck by the way the noble Baroness talked about loving exploitation, particularly the edge of guilt in the relationship between mothers and grandmothers and the issue of childcare. Just last Saturday lunchtime, my daughter, who is not even married yet and so far as I know has no immediate plans to have children, casually said to her mother, “Mum, when I have kids, would you look after them for two days a week, please?”. I hope that my daughter is going to be a well-paid barrister and thus able to afford childcare, and my wife is a doctor with no plans to give up work. She said, “Certainly not. At least, not unless there is a problem”.
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- Baroness GreengrossCrossbench
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- I speak as chair of the All-Party Group on Grandparents and Extended Kin. I agree completely with the noble Baroness, Lady Hollis, that it would be better if we did not have to make small adjustments. Anything that can help grandparents to retain their pensions rather than suffer the tremendous disadvantage that so many of them face at the moment when compared to non-family carers would be welcome. It is grossly unfair. In many instances social services will come round with the child and say to the grandparent, “Will you look after this child?”. The grandparent will obviously say, “Yes”, and therefore exclude herself—it is usually “herself”—from the benefits that would have been available to someone who was not a relative. That is only one example of the awful things that happen to grandparents. At least we could help them through the amendment not to lose out on an entitlement to a pension. I support the amendment with the same reluctance as the noble Baroness—we would prefer something better—but, in the circumstances we face, anything to help grandparents would be welcome.
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- Baroness Howe of IdlicoteCrossbench
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- I support the amendment, not with reluctance but because it is crucial to face this issue. A huge number of grandparents are now involved in supporting their daughters and sons—usually it is their daughters—so that they can have a full working and parenting life and not be in the same position the grandparents are in now. There may be a better way of doing this—I accept that—but we are asking the Government to find a better way to deal with this situation and, at the same time, to acknowledge the amazing extra sacrifice being made by this generation. I very much support the intentions of the noble Baroness, Lady Hollis.
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- Lord SkelmersdaleConservative
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- I do not want to go into my family history in the same way as the noble Lord, Lord Oakeshott, but, on these Benches, we fully support the idea that government benefits should not unintentionally penalise those families who support each other with the upbringing of a child. So, to that extent, I go along with the amendment. Having a grandparent or other close relative to rely on for help with childcare, whether it be on a regular basis or for emergencies only, can be a critical factor for a parent in deciding whether or not to go back to work. That, of course, is the best way of ensuring that a child is not brought up in poverty. There is also, unfortunately, a rising number of families in this country where neither parent is capable of bringing up a child for one reason or another. In this situation it is almost certainly the case that it would be better for the child to be looked after by the extended family rather than to be sent into care. But—and there always seems to be a “but” in my responses to the noble Baroness’s amendments—I see a small problem in the amendment, to which I am sure the Minister will allude. The amendment appears to make contribution credits payable twice for the same child, once for the parents and once for the grandparent. I have tabled a later amendment that relates to the reallocation of child benefit—which, in a sense, is linked—and it might be a more appropriate way of dealing with the situation. I am sure the Minister will tell me, perhaps before the noble Baroness tells me I am wrong.
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- Baroness Hollis of HeighamLabour
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- I take the point that the amendment may be inappropriately and badly drafted but it is intended to apply to those daughters who are in work, paying national insurance and tax, and who have a child under 12. It would qualify them if they were not drawing down HRP because they are already covering themselves through NICs. That is the point about the double provision and why I did not think the amendment contained the error suggested by the noble Lord.
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- Baroness Dean of Thornton-le-FyldeLabour
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- I, too, support the amendment. It was interesting to hear the comments of the noble Lord, Lord Oakeshott, but, with all due respect, many grandparents are not in a position to respond in that way. With the increasing fragmentation of the family in the UK, this is a growing problem. The amendment is not an ideal way of dealing with this situation—we would prefer something in the Bill that took out some of the complications—but it is a way of raising the issue. All of us who support the amendment would love dearly for the Minister to come forward with a solution. If we do not raise this issue in this Bill, we will have no other opportunity to do so. There are grandparents and parents out there who are acting as carers, but not because they want to. I think most grandparents would love to say no, but they do not have the opportunity. That is certainly the case in our family. I shall be interested to hear the Minister’s reply to this discussion and I hope we will see some movement on the issue.
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- Baroness Turner of CamdenLabour
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- I support the amendment and what has been said succinctly by my noble friend in moving it. It seems that every effort has been made in the amendment to try to ensure that the extended family is covered. Subsection (5), for example, describes what is meant by a “relevant other relative”, but it also says, “shall not include a registered childminder”. In other words, it is clearly directed at the grandparents and the extended family, which is terribly important in the current situation. It may be important for ethnic minorities, where the extended family is important and there may not be any other form of benefit for the people who look after the child, such as the grandparents. This is an important amendment. Even with all the difficulties that we know are involved, we still have to find a way through in order to give the relevant benefit to the relevant people.
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- Lord McKenzie of LutonLabour
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- I fear I am going to disappoint my noble friend yet again, but I hope I can convince her that in doing so we have a good basis for supporting grandparents. I am conscious of the heroic efforts of many grandparents in supporting their children and their grandchildren. I have had the opportunity twice in recent months, together with the noble Baroness, Lady Massey, to meet groups of grandparents and understand some of the tragic circumstances that they have encompassed in their lives and the struggles they have. We reasonably address their circumstances under the Bill. Broadly speaking, the amendments seek to give national insurance credits to a relevant grandparent or other relative who is engaged in looking after a child to whom they are related. In the debate on the previous group of amendments we discussed how we intend to define “engaged in caring”. It would be interesting to hear from my noble friend how we define “engaged in looking after” and how that differs from “engaged in caring”. In the debate that has taken place we have to a certain extent conflated those two concepts, and it is important that we separate them. “Looking after” could be more occasional, and something less than “caring”. We already have a tried and tested way of identifying those who are looking after children, through the award of child benefit—which also carries with it HRP, as my noble friend said, or, from 2010, the new credit. That credit can be switched to whichever parent needs it, provided that the child benefit is switched as well. The noble Lord, Lord Skelmersdale, will press that point in an amendment to which we will come shortly. In other words, the credit goes with the child benefit, as it is awarded in recognition that the parent is the primary carer of the child, usually the mother. However, there is existing provision for parents to relinquish their child benefit award. I assure noble Lords that HMRC, which administers child benefit, takes great care to ensure that parents or other child benefit awardees are aware of their right to relinquish entitlement to it in favour of the person who gives up work to look after the child. Certainly, some of the grandparents I have met are in receipt of child benefit. They are entitled to it because their children, sometimes for very tragic reasons, have given up the care of their child. It follows logically that if grandparents or other relatives take on the role of primary carer, they would be entitled to child benefit and the credit in their own right. The credit would run for S2P as well as the basic state pension, something not covered by the amendment. I neither underestimate nor undervalue the role that grandparents or other relatives can play in looking after a child. However, research suggests that the majority of those providing any childcare do so for just one or two days a week. I would distinguish the childcare that takes place in tragic circumstances following the death or effective loss of a child, perhaps through drug or alcohol dependency, from the casual support that people give their grandchildren. That statistic about caring for grandchildren one or two days a week on average gives credence to the view that most grandparents—or, rather, family relatives—do not generally perform the role of primary carer and may not therefore be disadvantaged when looking for work. On that basis, it would be wrong to award class 3 credits to the generality of grandparents rather than, as the Bill does, supporting those grandparents and others who are involved in caring. We have just discussed our plans for a new carer’s credit. There is no reason why a grandparent should not be eligible for the carer’s credit if they fall within the relevant criteria. For example, a grandparent might be providing care of 20 or more hours a week for a disabled grandchild to provide the mother with breathing space. Even if the mother is in receipt of carer’s allowance for that child, there will be no reason why the grandparent should not be eligible for the carer’s credit. In another situation, a person may be providing 20 or more hours care a week for their son or daughter, who is suffering from drug or alcohol dependency, as well as taking care of their children. In those circumstances, the grandparent could be eligible for the carer’s credit for looking after their son or daughter if they were either receiving the appropriate benefit or the need for care was certified by a health or social care professional. Furthermore, by definition, today’s grandparents were yesterday’s parents. If they retire after 6 April 2010, they will benefit from the conversion of years of home responsibilities protection from 1978 onwards, in respect of their own children, into years of credits, and of course from the reduction to 30 qualifying years to help them qualify for a full basic state pension. As a result of the Bill, a combination of credits for being in receipt of child benefit for their children and subsequently credits for caring for their children, or the award of child benefits for their grandchildren, could mean that only a few years of intervening work would enable them to achieve a full basic state pension. This is a major change resulting from the Bill. In my view, there is a significant difference between providing care and looking after somebody. We have sought to protect the pension rights of someone providing significant levels of care, either as the primary carer of a child or a disabled person. That is not the same as looking after a child on an occasional or ad hoc basis. Of course there can be hard cases but I hope the examples I have given show that what we are putting in place will provide effective coverage. I have not dwelt on the practicalities of pursuing the route that my noble friend suggests, but there are clearly practical implications for establishing the credit, should the amendment be adopted. As I said, I do not underestimate the importance of the role of grandparents or indeed other relatives in modern families. However, I believe that the amendment would be a step too far in supporting grandparents generally for doing what they have always done—providing help and support for their families. In the light of this, I ask my noble friend to withdraw her amendment.
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- Baroness Hollis of HeighamLabour
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- I thank the Minister. He is known colloquially—I think that one of his friends has said it—as the Minister for Grandparents, so I know how much he has taken to heart the plight particularly of those grandparents who are at the extreme end of pressured, dysfunctional families, where the parents are unable to take care of their children. If anybody can fight to help to improve their situation, I am sure that it will be my noble friend. I accept his points about the technical difficulties of the amendment. I accept that transferring across is not straightforward, which is why—I am sorry if I sound like a gramophone record—we really need Amendment No. 4, which would address the problem. If we cannot agree to Amendment No. 4, we shall have to find some other way and keep going after pockets of individuals with tailored solutions. I disagree with the Minister’s suggestion that we might appreciate that we have in place “effective coverage for grandparents”. No, we do not. What we have—I welcome my noble friend’s remarks on it—is greater protection and support where either the grandchild or their parent is disabled. My noble friend’s comments in that regard were very helpful. However, where a grandparent is engaged in steadfast caring for a child—I am talking about 20 hours a week or more on a regular basis—in, let us say, a rural community, where one is unlikely to be able to find alternative commercial care for a two year-old, I do not understand the distinction between caring and looking after. When I looked after my two year-old, I was caring and looking after at the same time. It is not a valid distinction. We are talking about somebody whose hours of committed, reliable caring are such that they take that grandparent out of the labour force to enable the daughter to be in it. At that point, the grandparent loses their income, because they are not receiving child care tax credit—that is perhaps a battle to be fought on another day—and their pension rights as well. I am afraid that nothing that my noble friend has said today gives me comfort on that front. He asked for some way of checking. We currently have a child care tax credit, which is a high-value payment, being worth £150 or more, and there is a fairly flaky audit trail on to whom it is being paid. Whatever system we have for that can certainly apply perfectly well for someone who is seeking merely to acquire a pension credit as opposed to an income payment. A district health visitor could make an occasional check while on a call that they would probably make at any rate on a two year-old at home. A GP could authorise it in a similar way. There are plenty of people who interface with the lives of those children, their parents and their grandparents if an audit trail is needed. If a parent, particularly a lone parent, is in work full time and has a child under 12, especially a child under five, we know that someone has to look after it. If the parent is not claiming child care tax credit, it almost certainly means that the primary carer is the grandparent or a family relative. If it was anybody else, they would be able to claim child care tax credit. Ergo, there is a grandparent involved; ergo, somebody is failing to achieve the protection that they would get through entitlement to a basic state pension if they were in the labour market. The problem that the Minister identified does not exist.
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- Lord McKenzie of LutonLabour
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- Does my noble friend not accept that, under the 30-year rule, if somebody is a grandparent, even with the 12-year credit rule for their children, 12 of those 30 years are already covered? However extensively they are caring for or looking after—we could debate what those concepts may mean—children grow up. They will not necessarily absorb the whole of the rest of the working life of the grandparent. The 30-year contribution rule, together with the other changes—the de minimis provisions and the mixtures of credit and payments-in—makes a significant difference to the position of grandparents that my noble friend describes.
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- Baroness Hollis of HeighamLabour
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- My noble friend is absolutely right that the 30-year rule would help, but he is assuming that only one grandchild is concerned, that that grandchild grows up and the grandparent can then go back to work. We are talking about perhaps two grandchildren growing up or two families, with two or three daughters needing help, particularly in rural communities. We could very easily be talking about a situation where the people concerned may bring up their own child and receive HRP, manage two, three, four or five years in the labour market and then, from age 50 to age 65, provide almost continuous child care for grandchild after grandchild. My noble friend can do nothing to help them except to ensure that they go into old age without a pension of their own.
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- Lord McKenzie of LutonLabour
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- That really is not correct. If we examine the circumstances that my noble friend describes, presumably the grandparent is likely to be in work for a period before having children. That is not necessarily the case but it is possible—so there are opportunities there to build for the state pension. If the grandparent has only one child, 12 years’ worth of credits will be earned, so if nothing else happened there would certainly be an entitlement to a proportion of the basic state pension. At that level it would not be the complete state pension. If you assume that after that period there was no engagement with the labour market and no other entitlement to credits, what my noble friend says is right—except that at least on that basis a proportion of the basic state pension would be available to that person.
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- Baroness Hollis of HeighamLabour
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- I entirely agree. My noble friend is right that if that person has had a job there will be 12 years under the new regime under which they will acquire HRP protection as of right. They may at that point, for three, five or eight years—who knows—be in the labour market. However, the average age to become a grandparent is 49, which means half of those people become grandparents before that age and half after it. Obviously, some will be caring after the age of 60 or 65, but none the less a substantial number of women will find that the whole decade of their lives between the ages of 50 and 60 is taken up in childcare. I do not doubt that some women will be able to cobble together a 30-year record in bits and bobs, and I am delighted if they can. But they will not know that necessarily until the day before they retire, and they will not be able to buy additional years, which would allow us to help them to overcome the problem.
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- Lord McKenzie of LutonLabour
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- They would be able to buy six years under the current arrangement, so that is another six years of entitlement to basic state pension.
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- Baroness Hollis of HeighamLabour
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- Yes, but the point is that they may start caring at 50; they would hope to finish at 55, but their daughter may have another child and they may find themselves in a further caring situation. At 58 they cannot buy back the years that they have missed at 50 or 51, as my noble friend explained so clearly earlier. I do not doubt that some grandparents will be able to cobble together some coverage, but I am concerned about the ones who cannot or will not. This amendment is not the best way in which to deal with the issue, but it may be the only way in which to raise it, given the Government’s reluctance to address other ways in which to deal with grandparents’ problems. Grandparents who take on the bulk of childcare, possibly for a decade or more, for their children, lose out on their pension rights and, because they are not allowed to register as childminders, lose out on childcare tax credit, too. I am not comfortable that the amendment is the right form for this proposal because it would introduce technical difficulties about transferring across, but I am very grateful for the support that I have received. It has been a very wide-ranging debate. There is a problem to be addressed here. I am not saying that this amendment is the right way in which to resolve that problem—I am not persuaded that it is myself—but there is a problem here that women, particularly women in rural communities, low-paid women, parents of lone parents and so on, take on a responsibility for which they pay a very high cost. Some of them will find themselves without a full basic state pension when they enter official retirement. I hope that my noble friend will find ways in which to address this problem.
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- Baroness Howe of IdlicoteCrossbench
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- I should like to probe a tiny bit further. Clearly the Minister has addressed a lot of ways in which the group that we are discussing is being helped, especially with individuals with serious problems. We are dealing with a generation in which grandparents, particularly the older ones, are seeing a transition from a group who, like them, did not go to work, to a group who are automatically going to work. It is part of the routine; from day one they are beginning to earn their pension. Those grandparents are making an extra-special effort to help their children to ensure that they are in that position. I support what the noble Baroness, Lady Hollis, has said. We agree that the amendment may not be the perfect way in which to do this, but can the Minister think a bit longer about the issue and see whether there is any way in which he could address this particular point? This is a hugely important period of time for equal opportunities, in which grandparents are willingly playing a particularly heavy price.
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- Baroness GreengrossCrossbench
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- Will the Minister consider one other thing? Somewhere in the Bill could there not be a line that stresses that grandparents who care for 20 hours or more a week should not be discriminated against in terms of pension rights compared with non-family carers? I do not know whether that is the right way in which to do this—but if there were some line to that effect it would help enormously, because at the moment they are gravely discriminated against.
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- Lord McKenzie of LutonLabour
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- With the force of argument that has been made, one will continue to reflect on this matter. However, unless I am missing the point, it is not right to say that grandparents are discriminated against in these provisions in comparison with non-grandparents. They are in exactly the same position. To recap on the journey that grandparents could take—even under the scenario that the noble Baroness, Lady Howe, outlined, which I do understand—a grandparent would presumably have the opportunity to start off in work at the start of their lives. They may possibly give up work when they have children, but then be entitled to the credit for 12 years—so there are two tranches of contribution towards the basic state pension. Even if for the rest of their life they were involved in caring for children in a way that did not produce any credits for them, under the provisions, they could buy the final six years—or any of those six years over that period. If you top that up—and those would probably be fairly unusual circumstances—quite a significant tranche of basic state pension would be available because of that. We need to keep this in context. I shall continue to reflect on the matter.
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- Baroness Hollis of HeighamLabour
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- With that assurance, I beg leave to withdraw the amendment. Amendment, by leave, withdrawn. [Amendment No. 10 not moved.] Clause 3 agreed to.
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- Lord SkelmersdaleConservative
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- moved Amendment No. 11:
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- The noble Lord, Lord Skelmersdale, made a brief but powerful attack on the evils of means-testing and I do not propose to duplicate his figures. However, given the scandal of 1.7 million or 1.8 million people—whatever the figure is—not receiving the pension credit to which they are entitled, the disincentive effect of means-testing and the problem for people under the national pensions savings scheme, I was a little surprised that he did not seem to feel that we should take stronger and bolder action to reduce means-testing. Be that as it may, we all agree that there is a problem. We on these Benches still have an open mind on the amendment. As the noble Lord said, the department already provides most of this information. I am not against the Secretary of State’s making a regular report but I am not sure whether it is more appropriate to ask the Secretary of State to do another report or to ask a more independent body to do it. Perhaps we can return to that when we come to the provisions on the Personal Accounts Delivery Authority and our Amendment No. 111. We are thinking of having the authority do it so that it can specifically look at and link in the effect of means-testing, estimates of the amount of means-testing, and the effect that that has on whether people should be saving through auto-enrolment and so forth. The noble Lord’s amendment and our later amendment both call for a number of other reports. We will have to wait and see how the discussion on other report-seeking amendments goes, because we do not want to create a report overload. However, I accept the broad thrust of this amendment. We will need further discussions before Report to see how hard we should press each of these report-seeking amendments.
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- Lord FowlerCrossbench
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- I say in parenthesis that I was quite cheerful in the debate until the noble Baroness, Lady Hollis, revealed that the average age of grandparents was 45.
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- Baroness Hollis of HeighamLabour
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- It is 49.
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- Lord FowlerCrossbench
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- It makes almost no difference to the point that I was going to make. Having become a grandfather for the first time three months ago, I hope that the noble Baroness recognises the contribution that older grandparents can make. I strongly support this amendment and congratulate my noble friend on proposing it. It is one of the more important amendments that we have so far debated and potentially one of the most important on the Bill. However, I agree with the noble Lord, Lord Oakeshott, that it would be much better to have an independent commission do this type of review.
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- Lord McKenzie of LutonLabour
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- I thank noble Lords who have contributed to this debate, but I urge the noble Lord, Lord Fowler, not to keep going on about changes of Ministers at this juncture—it does not help one to concentrate. I thank the noble Lord, Lord Skelmersdale, for moving the amendment, which raises the important issue of future pension credit take-up. Much has already been said about this subject both here and in another place; however, I think we can all agree that it would not have been appropriate to allow means-testing to spread as it would have done had we not acted. Our package of reforms will result in a reduction of the proportion of pensioners eligible for pension credit. This amendment seeks to require the Government to produce five-yearly reports on pension credit which will be considered by both Houses. We have already set out our longer-term projections for pension credit entitlement under our reform proposals in the regulatory impact assessment which accompanies the Bill. There is a lot of information about how the projections have been derived. It is important that we monitor the extent of means-testing and the take-up and expenditure of pension credit, and such evaluation will be critical in ensuring that our reform project is on track. In that respect I can see the intentions behind this amendment. However, the amendment asks for a five-yearly report on information which is largely already produced regularly, usually annually. The DWP already publishes annual long-term estimates of benefit expenditure which includes pension credit. These estimates also feed into the Treasury report on long-term fiscal sustainability. Estimates of current and projected case loads are used to calculate these expenditure projections. We recently published these case-load projections and will continue to do so annually. Estimates of current pension take-up rates are included in the annual take-up of income-related benefits report published under the independent national statistics guidelines. The number of pension credit recipients is published quarterly on the DWP website. So we already regularly produce a comprehensive set of pension credit data, and it is important that we continue to do so for planning and operational purposes. I can therefore see no reason for legislation to require information that is already in the public domain to be reproduced in a single report and published only every five years. That would be a backwards step from what we have now. For those reasons, I urge the noble Lord to withdraw the amendment. I know that we are going to have a debate, as part of our consideration of the Bill, about the extent of means-testing and how that impacts on people’s propensity to save, and I look forward to that. Simply because people are on pension credit does not mean that they cannot get good returns from savings. That would not apply to absolutely everyone in that situation. The long-term projection shows that something like 6 per cent of people on pension credit would be on the guaranteed minimum amount, which is the 100 per cent withdrawal category. A lot of information is already in the public domain and is published and produced regularly, and I am happy to commit the Government to producing regular updates of our longer-term projections of pension credit entitlement under reform, which fed into the RIA.
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- Lord SkelmersdaleConservative
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- I am extremely grateful to my noble friend Lord Fowler for his speech in response to my amendment. I was somewhat surprised by the last point that the Minister made. At Question Time today, the third Question was about the Olympics; the noble Lord was clearly jumping fences before he had arrived at them, which is probably a bad habit, certainly for a hurdler. Perhaps he has never been a hurdler; I do not know. It is all very well having little dribs and drabs of information scattered in miscellaneous reports, but that is no substitute for collating them. I accept the Minister’s point about having such a report every five years, but I do not accept the fact that it is not needed because of the plethora of information that is already available and which he has committed himself to continuing to make available. I will consider whether to go further with the amendment. In the mean time, I beg leave to withdraw it. Amendment, by leave, withdrawn.
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- Lord SkelmersdaleConservative
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- moved Amendment No. 12:
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- Baroness Morgan of DrefelinLabour
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- I think I am replying to Amendment No. 13. Is that correct? I will come back to Amendment No. 12.
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- Lord SkelmersdaleConservative
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- We have already done Amendment No. 12.
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- Baroness Morgan of DrefelinLabour
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- No, we did Amendment No. 11. The noble Lord spoke to Amendment No. 13 but he moved Amendment No. 12. Does the noble Lord want to move Amendment No. 12?
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- Lord SkelmersdaleConservative
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- No. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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- Lord SkelmersdaleConservative
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- moved Amendment No. 13:
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- Baroness Morgan of DrefelinLabour
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- I am very happy to respond to Amendment No. 13. Noble Lords will already be aware that home responsibilities protection is currently awarded to a parent or person who is in receipt of child benefit, in order to protect pension entitlement. Currently, a person who is awarded child benefit can ask for it to be transferred to their partner. However, the individual must apply to transfer the child benefit award so that the transfer is completed within the first three months of a tax year—6 April to 6 July—to qualify for HRP for that year. As the noble Lord stressed, legislation does not allow the protection to be awarded retrospectively. In most cases, that operates successfully, but we are aware of a small number of cases in which a non-working parent misses out on HRP because their working partner receives child benefit. But for those affected—we have heard of only 80 appeals for 2005-06, which is a small number—the negative consequences on basic state pension entitlement can be severe. With the proposed replacement of HRP with weekly credits from 2010, the situation could be exacerbated because, unlike HRP, credits will count positively to benefit entitlement. To mitigate the effects, we intend to allow the new contributions credits to be utilised by the partner or parent who actually needs them; for example, in cases where the person awarded child benefit also has contributions from earnings but their partner does not. That measure was announced at Second Reading in the other place by my honourable friend, James Purnell, Minister for Pensions Reform. We made it clear in the delegated powers memorandum that the power to define those “engaged in caring” will be used to provide that important safeguarding measure for parents. It would apply to those reaching state pension age from 6 April 2010, the proposed start date of the coverage reforms. That safeguarding measure would allow HMRC, which administers child benefit, to deem that a parent is entitled to contributions credits throughout or for any part of a tax year in which they have a deficient contribution record if their partner, who was awarded child benefit, has a full contribution record for that year derived from paid or credited contributions and does not need the credits themselves. However, we will also extend the existing HRP regulations to ensure that the non-working partner can benefit from HRP awarded prior to 2010. The onus will be on the individual to tell us, either before or following the calculation of someone’s state pension entitlement, that their partner should have been awarded child benefit. The customer will need to inform the Pension Service or HMRC that the wrong partner was allocated child benefit. They will also be required to provide supporting evidence, either before or following calculation of benefit entitlement, within the normal time limits. We will be working with HMRC to ensure that people are made aware of the new provision and how it may affect individuals’ pension entitlement.
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- Lord SkelmersdaleConservative
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- I shall certainly withdraw it. I was extremely interested in the further information that the Minister gave me over and above what I gleaned from proceedings in another place. I shall study it with great interest. She appeared to say that, with the exception of a tiny minority, there was no problem in the reallocation of child benefit to the correct parent. I am delighted to hear that that is the case. As regards the new arrangements for carers credit, one rather wonders whether that is likely to be of the same low order. As I said, I shall study very carefully what the Minister said and, if necessary, come back at a later stage. I beg leave to withdraw the amendment. Amendment, by leave, withdrawn. Clause 4 agreed to. Clause 5 [Up-rating of basic pension etc. and standard minimum guarantee by reference to earnings]:
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- moved Amendment No. 14:
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- Baroness Turner of CamdenLabour
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- I, too, ask my noble friends on the Front Bench to consider this matter sympathetically. It is not the first time that this has been considered in this place. In the past the argument has always been advanced that the uprating applied only in countries where there were reciprocal arrangements. I received a letter from Mr John Markham, who has for some time lobbied on behalf of the Canadian Alliance of British Pensioners, in which he states that in the debate in the House of Commons the Minister stated that there was no need for a reciprocal agreement with the frozen territories in order to uprate/index pensions. If that is so, it seems to me that the argument about reciprocity disappears and that we are looking at two groups of pensioners, one of which has frozen pensions and the other of which does not; it has fully indexed pensions. That seems to me to be basically unfair and a situation which really should be rectified. Therefore, I hope that on this occasion we shall have a sympathetic hearing from the Front Bench.
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- Baroness GreengrossCrossbench
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- I, too, strongly support the amendment. Over many years I have met people who represent pensioners abroad. It is very sad that so many people who feel quintessentially British consider that this country has given them such a raw deal, particularly those living in Canada who see that just over the border in the United States the uprated pension is available. More people from this country join their families in Australia and Canada than come to settle in Britain from some of the eastern European countries, where this rule would not apply. That is grossly unfair and it is a terrible indictment of this country when people who have spent their whole lives working and paying towards a pension have their pensions frozen in this way when they retire. They see it as a total injustice—and I agree with them. I strongly support the amendment.
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Lord DearingCrossbench- Quote
- I, too, strongly support the amendment. It is some years since I raised this issue on behalf of some residents in Canada, who found it difficult to understand why the border should determine whether or not they received a pension. After all, they do not make reciprocal agreements—they have no power to do so—but it is iniquitous to reduce their pension year by year by allowing inflation to erode it. I cannot see the justice of that. The only further answer that I received, apart from that relating to reciprocity—and I listened carefully to the noble Baroness, Lady Turner—was, “It is not one of our priorities”. I regret that that was not convincing to my correspondent in Canada. I hope that the Minister will say something better and more reassuring.
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Lord Jones of CheltenhamLiberal Democrat- Quote
- I support the amendment and wish that my noble friend and, indeed, the Minister would go further. I became aware of this issue when I represented Cheltenham in another place. The matter was first brought to my attention by a lady who wished to retire to Canada, where her only son lived. She found out quite late that her pension would be frozen if she went to Canada. She did not want to live with her son and his family, but she wanted to be nearby to see her grandchildren grow up. She did not wish to be dependent upon her relatives. She did not understand why her pension would be frozen and thought that there had been a mistake. She wrote to the then DSS and showed me the letters explaining the Government’s position that she had received in reply. Frankly, I did not believe it at the time. However, further correspondence ensued and confirmed that on the day she would leave the United Kingdom to go to Canada her pension would have been frozen. She waited, expecting the then Government to change those rules, because she was convinced that it was a mistake, but nothing happened. She eventually said, “Look, I’m getting so old that I’ve got to go”. She was 70 when she went to Canada, and she did not think that she had long left to live. I am pleased to say that she is now 80, having spent 10 years in Canada, but her pension has diminished in real terms over that time. She sends me regular e-mails. Some of them are stroppy and one of them described a recent tornado in Toronto—so she also keeps her eye on climate change. This issue has also been raised with me on my foreign travels, particularly by a vociferous Welsh butcher in Botswana. Perhaps I should declare an interest here, because my family owns a house in Botswana and it might be thought that I am pleading on my own behalf because I might retire to Botswana. I have no intention of doing so yet, but if reform of the House of Lords proceeds apace one never knows what might happen. I and my noble friend Lord Oakeshott have mentioned Canada, where the pensioners are well organised. They do not understand why the pensions of people living down the road in the United States of America are uprated, but their own pensions are not. I am told that two of my former constituents who worked at GCHQ retired across the pond, one to Canada and the other to the United States. They had worked in the same departments at GCHQ, at the same grade and had presumably made the same national insurance contributions. One of them receives the uprated pension and the other does not. That is not justifiable.
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- Lord SkelmersdaleConservative
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- We have had this debate just about every year since I re-involved myself in what I still, rather old-fashionedly, call social security matters. I am surprised that we are having that debate again in the context of this Bill. The noble Lord, Lord Oakeshott, will not be surprised to hear that our position on these Benches has not changed and I would be surprised if the position of government Ministers had changed, because I do not believe that it has.
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- Baroness Morgan of DrefelinLabour
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- This is my first run at this debate and I very much hope that I shall not be thought of as yet another brick in the political brick wall. However, I think that I shall disappoint the noble Lord who moved the amendment and those who spoke in support of it. John Markham seems to have been a very effective campaigner. He has put a great deal of work into this issue and I am sure that he has met my honourable friend, the Minister for Pension Reform. I wish to clarify the intention behind the amendment. I have assumed that, as was the case regarding a similar amendment moved in another place, the noble Lord’s intention was for the amendment to cover all categories of state pension for those living abroad who are entitled to a UK state pension—in other words, to bring in those countries where the pension is currently frozen. As I am sure noble Lords are aware, UK pensions can be claimed anywhere in the world, and that has been the case since 1955. The UK arrangement ensures that those who have worked in the UK and built up entitlement to the state pension here should get it, irrespective of how long they have lived in the UK or where they choose to reside in retirement, and we do not plan to change that. We currently uprate state pensions abroad where we have a legal obligation or a reciprocal agreement to do so. During Second Reading, my noble friend outlined our policy for not uprating all UK pensions abroad and I will reiterate it today. It is a fact that we have limited resources and we need to prioritise our spending. Our main priority must be to pensioners living here: we want to ensure that they continue to see an improvement in their living standards. Of course, we must discharge our obligations to pensioners living in the European economic area and in countries with which we have a reciprocal agreement. Perhaps I may put the uprating of the state pension abroad in context. As we have heard, just over 1 million pensioners living abroad currently receive a UK state pension at an annual cost of around £2 billion. Of those 1 million, around 530,000 live in countries where we do not uprate the state pension in payment. These pensions cost around £830 million a year. The cost of uprating the pensions of all those living abroad who are entitled to the UK state pension would be considerable. As my noble friend said at Second Reading, it would initially cost an extra £420 million per annum to unfreeze pensions in frozen-rate countries and pay them at the rate that they would have been paid had the individuals concerned remained in the UK. This figure would rise year on year. Furthermore, if pensions in frozen-rate countries were to be fully unfrozen and backdated, with arrears paid so that each person with a frozen pension were treated as if he or she had never left the UK, it would cost in the region of £3 billion in 2007-08. I understand that that is not what we are talking about but I want to put it in context. To uprate only the amount of pension currently in payment would cost an additional £30 million if uprated by prices or an additional £35 million if uprated by earnings. These costs would of course rise year on year, and this option would not end the inconsistencies that have been described today. The differential between the pensioners who moved abroad many years ago and those who moved recently would remain the same. For example, if we decided to uprate the pension of someone receiving a pension of, say, £40 by last September’s retail prices index, he would get £41.45. Those who moved last year and were receiving the full pension of £84.25 would receive the current full rate of £87.30. We would be open to exactly the same accusations as we face today if we adopted such an approach. As I am sure the Committee is aware, an application on this issue is before the European Court of Human Rights. We expect to hear from the court later this summer. However, we are firmly of the view that it is right to prioritise our spending on UK pensioners, pensioners in the European economic area and those in countries with which we have a reciprocal agreement. I am aware that the noble Lord, Lord Jones of Cheltenham, has tabled three Parliamentary Questions and that he has made a tremendous commitment to raising this issue and the concerns of overseas pensioners. I assure him that he will receive Answers to those Questions shortly. However, it should be noted that these territories do not form part of the United Kingdom, although they are under the sovereignty and formal control of the UK and have varying degrees of autonomy. With the exception of Gibraltar and the sovereign bases on Cyprus, the British Overseas Territories are not subject to EU law, but we have a reciprocal agreement with Bermuda to uprate UK state pensions. A major consideration in deciding whether to enter into a reciprocal agreement is the extent to which the advantages to be gained outweigh the cost of negotiating and administering the agreement. If we were to enter into a reciprocal agreement with other overseas territories, we would have to ensure that they had a broadly equivalent pension scheme to enable true reciprocity to occur. Given the relatively small populations of some of the territories, that simply would not be practicable. Additionally, we do not think it appropriate to single out the residents of British Overseas Territories with UK pensions as being any more deserving of the uprating provisions than those living in former colonies or Commonwealth countries. If we were to make an exception on the basis of a link or a former link with the UK, it would be extremely difficult to justify not doing the same for former colonies and Commonwealth countries where we do not currently apply the uprating provisions. Indeed, it would probably require us to uprate UK pensions globally. The noble Lord, Lord Jones, asked for additional information regarding the potential costs of uprating specific territories. I do not have the details to hand but I am very happy to continue the dialogue on this issue in whatever way will be of help. I appreciate that this is a disappointing response but I hope that the noble Lord, Lord Oakeshott, will consider withdrawing his amendment.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- I thank all noble Lords who have spoken. Everyone has strongly supported the amendment apart from the Government and the Official Opposition Front Bench. If anything, the person who chided me slightly was my noble friend Lord Jones, who suggested, in a very moving speech, that I should have gone further, but we on these Benches can only go as far as we feel is affordable at this stage. However, at least we are putting forward a clear and, as the figures given by the Minister made clear, eminently affordable proposal. We think that £30 million or £35 million a year is a very modest start and it would recognise the injustice that exists. The noble Baroness talked about people having worked and built up their entitlement to a pension in the UK. Is that not an entitlement to a pension in the same form as that received by people who have not left? An entitlement to a pension which is halved or more than halved over a period by inflation and by being frozen does not seem to be the same as an entitlement to a pension built up by working in the UK. With regard to the points that my noble friend made about overseas territories, I honestly did not feel that the Minister addressed the fact that there is no one to negotiate a reciprocal agreement on behalf of these few hundred people. It is not right to compare the situation with that of former colonies from years ago, because those colonies now each have their own Government and, if they wished to negotiate a reciprocal arrangement, as some of them have done, they could do so. However, as the noble Baroness pointed out—I shall read her speech carefully—that would not be possible or appropriate in the case of the overseas territories. Therefore, these poor people are completely and utterly stuck and I think that, in a way, she made my noble friend’s case for him. I hope that the noble Baroness will specifically undertake to give my noble friend the figures that he asked for on uprating the pensions of 80 and 75 year-olds. It struck me that it was perfectly reasonable to ask for that and I hope that she will be able to supply the information before Report. As I said, we believe that we have made a very modest and affordable proposal. We shall certainly return to this matter at later stages of the Bill but, for now, I beg leave to withdraw the amendment. Amendment, by leave, withdrawn.
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Baroness Miller of HendonConservative- Quote
- moved Amendment No. 15:
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- Lord SkelmersdaleConservative
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- I added my name to my noble friend’s amendment because I support it. The Bill gives the Secretary of State enormous control over how the uprating formula is to be calculated. Almost my first words today related to precedents, as the noble Lord, Lord Oakeshott, will remember. Precedents may be good, bad or ugly. I understand that there is a precedent for this wording in the Social Security Administration Act 1992 and that the legislation governing the retail prices index and pension credit uses this wording. However, as my noble friend said, there has recently been a new precedent in the Employment Relations Act 1999, which uses the wording that my noble friend’s amendment lays out. I do not see why the benefits of being more precise in primary legislation, which is the fact in that Act, should not apply to this Bill too. I believe that the Government’s refusal to lay out the formulas and amounts for uprating is unnecessarily hindering attempts to restore trust in pensions and in the Government’s commitment to providing a more generous pension by uprating in line with earnings rather than prices. There are many ways in which the Secretary of State could use the current drafting to uprate pensions that, although technically correct, would be considered unduly stingy by most people. For example, questions of whether bonuses should be included or the wages of only a section of society, such as the private sector, will have a significant impact on the resulting numbers. The Minister will no doubt assure us that he intends to follow this or a similar formula anyway. However, if that is the case, why will he not consider putting a formula, such as the one in my noble friend’s amendment, in the Bill? I am sure that the magic word “flexibility” is about to spring from the Minister’s lips, but it is surely not appropriate in this situation, where numerous small changes to the method for calculating a pension will cause considerably more confusion and distrust than already exists. More importantly, it cannot be appropriate for two pieces of legislation that purport to do exactly the same thing to have totally different drafting.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- I would back the noble Baroness, Lady Miller, against a sore throat any time. We on these Benches support her amendments and I propose to speak mostly to Amendment No. 17, which is tabled in my name and that of my noble friend Lord Kirkwood and is similar in content. It is a very simple amendment that states that the level of prices means the retail prices index and the level of earnings means the average earnings index. These are simple, straightforward, well understood definitions, and we see no reason for leaving wriggle room. The Government—indeed, all of us—claim that simplicity and clarity should be the watchwords in pensions, and this is a simple example of where things can be simple. I am struck by the evidence of David Yeandle of the EEF, who is a practical, experienced and persistent lobbyist on pensions for his members, who are mainly smaller and medium-sized businesses. He says that they are disappointed that, as drafted, the clause gives the Secretary of State almost complete carte blanche to determine the way in which the uprating is undertaken. New subsection (8) in Clause 5 states that, “the Secretary of State shall estimate the general level of earnings in such manner as he thinks fit”, as we have heard. Indeed, the Explanatory Notes let the cat out of the bag, stating: “In practice this means the Secretary of State will be able to decide which measure or index of earnings growth shall be used for the purposes of earnings uprating”. The EEF considers that the current wording of the clause gives too much flexibility to the Secretary of State when implementing this important element of the package of pensions reform. I cannot see the reason for it. When people are planning their pensions and their future investments, it is very important that they know where they stand. The point of substance that the Minister, James Purnell, made in another place when he was talking about flexibility was that if the Government got into a situation, as has happened under previous Governments, where inflation reached 10 or 12 per cent, we would not want them to be tied in to a position that would make it harder to put that right; that is, he would want to cut again, effectively ending the link with earnings. That is very serious. I was a special adviser to Roy Jenkins in a Government in the 1970s when inflation got to 27 per cent, so I have a rather longer memory than James Purnell. However, with inflation at 10 or 12 per cent, I would not want pensioners to have their link taken away. Why should they be the ones to suffer? It is more than flexibility. If I read this right, the Government are genuinely saying, “We’re restoring the earnings link, but only for so long as it suits us”. That is very serious, and I ask the Minister to clarify the position and respond to the clear feeling of the Committee that we should know exactly where we stand, and so should pensioners.
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- Baroness Howe of IdlicoteCrossbench
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- I support the amendment. During my Second Reading speech, I drew attention to the importance of the inflation rate and I asked the Minister a few questions, which he did not really address in his summing up. It is clearly important that earnings rather than prices are the basis on which the changes are to take place. I, too, had a letter from David Yeandle, and I agree with the points that he made. I hope that a little more information on these points will come from the Minister because whatever the rate of inflation—and we are a bit worried about it at the moment—it will clearly make a huge difference to whatever decision we make about any aspect of pensions.
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- Lord McKenzie of LutonLabour
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- I thank all noble Lords who have spoken in this debate. I say to the noble Baroness, Lady Miller, that I am sorry that her voice is troubling her, but she should be assured that it did not detract from the clarity with which she moved her amendment, even though it did not help me reach the conclusion that I should accept it. Clause 5 delivers our commitment to uprate the basic state pension and the pension credit standard minimum guarantee in line with increases in earnings. The arrangements for earnings uprating are a fundamental element of our pensions reform package, and I am grateful to noble Lords and the noble Baroness for giving the Committee the opportunity to discuss this matter. Earnings uprating is one of the big prizes in our package of reforms. We are determined to ensure that future generations of pensioners continue to share fairly in the rising prosperity of the nation, building on the progress we have already made in tackling pensioner poverty. The group covers arrangements that form part of the uprating process; namely, the measure of earnings growth to be used and the practices for paying and rounding increases in the relevant amounts. Amendments Nos. 15 and 16 and 18 and 19, tabled by the noble Baroness, Lady Miller, and the noble Lord, Lord Skelmersdale, work together to remove the degree of flexibility which the Bill gives to the Secretary of State. Amendment No. 15 would remove the need for the Secretary of State to exercise judgment regarding whether earnings had increased, and, in conjunction with the other amendments in this group, would place unnecessary restrictions on the Secretary of State. There is nothing new about benefit uprating. The first legislation which set out a process for an annual uprating exercise, and enabled rates to be increased by an order subject to parliamentary approval, dates back to the early 1970s. Before then, a separate Bill was needed each time the rates were increased. Although there have been some changes since then—for example, income-related benefits were brought into the arrangements—the process has changed very little. Just because we have done something in a particular way for many years, it is not the case that we must continue to do so. The major reforms in this Bill give the lie to that. However, in this case, the uprating process has served us well and has stood the test of time. Indeed, we will continue to use it for the majority of benefits which will still be uprated in line with prices. The Bill’s provisions ensure that the same process applies to earnings-linked and prices-linked uprating. I appreciate that the noble Baroness, Lady Miller, has concerns about the apparent flexibility which the Secretary of State is given, and would therefore prefer to see every element of the process specified very precisely. As things stand, however, Secretaries of State have to act reasonably when they consider questions such as whether earnings, or, for that matter, prices, have increased. She noted that if the Secretary of State acted in an arbitrary way, the process of judicial review would be readily available. In practice, as noble Lords will know, the Government use published indices produced by the Office for National Statistics. That brings me to Amendment No. 19, which in part seeks to specify a precise index for the measurement of earnings. At Second Reading, the noble Baroness, Lady Miller, set out clearly her concerns about the flexibility which the uprating provisions give the Secretary of State. Accordingly, the first part of Amendment No. 19 specifies a precise earnings growth measure to be used for uprating—the average earnings index, including bonuses, for the whole economy for September. At this point, perhaps we should discuss Amendment No. 17, tabled by the noble Lord, Lord Oakeshott, as it also seeks to define in the Bill the measure to be used to uprate pension amounts as the average earnings index. However, I note that this amendment does not specify which average earnings index should be used—there are a number of them. I should point out that the amendment also specifies that in the case of prices it shall be the retail prices index. It may be that the noble Lord included this reference to support the approach of uprating by the higher of prices or earnings, but I do not think this approach is necessary. As I have already explained, there is generally nothing new about the uprating provisions in this Bill. We wanted the provisions in Clause 5 to be consistent with those that presently govern the uprating of the basic state pension for prices. The current provisions have been in place for many years and work very well. We see no reason why the earnings uprating provisions should not follow suit. Therefore, just as current arrangements give the Secretary of State discretion over the measurement of prices, the new provisions give the Secretary of State discretion over the measurement of earnings. I mentioned earlier that the Secretary of State relies on published indices produced by the Office for National Statistics. As all noble Lords are aware, the average earnings index has been used to uprate the standard minimum guarantee since 2003. In fact we use the headline three-month average figure to July for the whole economy, seasonally adjusted, including bonuses. A provisional rate is published in September, but we tend to use the October revision. Our current intention is to use this for earnings-linked uprating in the future. I note that Amendment No. 19 specifies the September average earnings index. Using the three-month average to September would severely affect our timings, as the provisional rate for September is not published until November. That timescale would not leave us with enough time to make the necessary system and legislative changes for the Secretary of State to meet the requirements to bring the new rates into force at the prescribed time. So, while the Government do and will rely on published ONS measures, we do not think that it would be wise or helpful to specify in primary legislation a specific index to be used for the purposes of uprating pension amounts. Flexibility needs to be maintained, as it is not unknown for the publication of particular indices to be suspended, although it is some years since that last happened. That happened when the ONS suspended publication of the average earnings index between November 1998 and March 1999. If history repeats itself and the legislation specifies that particular index, these benefits could not be increased. In practice, of course, that would be unthinkable. The very flexibility this amendment seeks to remove is vital in enabling the Secretary of State to make alternative arrangements. I know from Second Reading that the noble Baroness, Lady Miller, is aware of the provisions of Section 34 of the Employment Relations Act. Section 34 allows for the prescribed limits on payments and awards under employment legislation, such as unfair dismissal and redundancy payments, to be varied in line with the retail prices index. However, there are some important differences between increasing, or, indeed, reducing, the amount that employers are obliged to pay under that Act and uprating benefits. For example, under Section 34, payments can be increased or reduced only by the same percentage change in the retail prices index. Like Section 34, Amendment No. 19 dictates that pensioner benefits can be increased only by the same percentage as the amount of the increase in the relevant earnings index. So, in the scenario where the Secretary of State wanted to increase pensioner benefits by more than the increase in the relevant index, the effect of the amendment would be to tie his hands and prevent him doing so. Just as the current legislation gives discretion to uprate by more than prices, the new earnings uprating provisions give discretion to uprate by more than earnings. The Government have made use of this flexibility in recent years and uprated the basic state pension by more than the retail prices index on a number of occasions, meaning that between 1997 and April 2007 pensioners have seen a 7 per cent real terms increase in their basic state pension. I am sure noble Lords will agree that we would not want to prevent the Secretary of State increasing the basic state pension by more than earnings if he wished to do so. That is precisely what Amendment No. 19 would do—restrict his room for manoeuvre. Clause 5 provides certainty. We are legislating for our commitment on earnings uprating by replicating tried and tested provisions. The final section of Amendment No. 19 makes changes to the current well established arrangements which allow the Secretary of State to round up or down. The usual convention is to round to the nearest 5p. The amendment provides that increases are to be rounded to the nearest 10p. The provisions of the final section of Amendment No. 19 are replicated in Amendment No. 18. At present, the Secretary of State is required to review pension levels each year to see whether they have retained their value in relation to the general level of prices. If they have not, he is required to increase them. Legislation provides that this increase may be rounded up or down, “to such extent as he thinks appropriate”. Although the legislation says that, in practice, the usual convention is to round up or down to the nearest 5p. The provisions in new Section 150A of the Social Security Administration Act 1992 inserted by subsection (1) of Clause 5 broadly mirror the provisions of existing Section 150. Section 150 gives the Secretary of State discretion to round up or down, and the rounding provisions at Clause 5 merely replicate current arrangements. Applying percentage increases to benefit rates rarely produces exact cash amounts, so rounding is a well established procedure. I should point out that pensioners do not necessarily lose out or gain as a result of rounding. Implementing the provisions means that in some years the rounding will result in the rounded figure being slightly higher than the calculated figure, while in other years the rounded figure will be slightly lower.
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- Baroness Miller of HendonConservative
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- I thank the Minister for his very detailed answer. It was so detailed that I shall need to read it very carefully to ensure that I understood every nuance. I also thank the noble Lord, Lord Oakeshott, for his support. Interestingly, his amendment is very similar; it simply comes at the matter from a different angle. At this stage, because I have not read what the Minister has said, I beg leave to withdraw the amendment. Amendment, by leave, withdrawn. [Amendment No. 16 not moved.]
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- had given notice of his intention to move Amendment No. 17:
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- Baroness Hollis of HeighamLabour
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- moved Amendment No. 20:
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Lord Kirkwood of KirkhopeLiberal Democrat- Quote
- Provoked by the noble Baroness, I am happily willing to support these amendments. The noble Baroness is right. I spent a lot of time in the previous two Parliaments in another place looking at the whole area of disregards, not merely those targeted at and connected with pension credit. However, pension credit disregards have some specific problems. Apart from anything else, the upratings that the noble Baroness suggests would be not as expensive as if disregards were to be addressed across the whole system. The thing that the Government always slip out from under is the charge as to why earnings disregards have never been uprated since 1988. When income support came in the IS disregard was £4. All this time later, we are talking about £5. It seems strange that there is no recognition of the fact that over that period of time, leaving the amount of disregard at that level is bound to have an effect on people’s incentives to go out and get a little job, particularly for those of the age group to whom this amendment relates. Ministers have discretion on this. It is understood that there is no statutory requirement. This amendment seeks to do that, which is right. The Committee would be well advised to give it serious consideration in the context of this debate right now. If there is no willingness to give statutory uprating, why on Earth are the Government not able from time to time to use discretion unless the policy, unstated, is to let it wither on the vine?
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- Lord McKenzie of LutonLabour
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- I am grateful again to my noble friend Lady Hollis for tabling an amendment which enables us to discuss an important issue. Much has already been said about pension credit and the proportion of pensioners who may be subject to means-testing in the future, but this brings an added dimension by introducing to the debate the current treatment of elements of income and capital within pension credit. I shall respond first to the amendment relating to earnings disregards. It seeks to increase the amount of the earnings disregards that apply and would require the Secretary of State to review and uprate them in line with earnings on an annual basis thereafter. As my noble friend is aware, we recognise that some people nominally “in retirement” may wish to take up work and keep in touch with the job market, so a small amount of earnings are disregarded within pension credit. We disregard £5 a week for most people and £10 for couples, although in certain circumstances this can be £20. My noble friend suggests that these levels should be increased. However, pension credit is not intended for people who do substantial amounts of work. While we fully support the principle of working and recognise that for many “in retirement” this is a positive step, pension credit is primarily a safety net entitlement. Pension credit provides cash help for the poorest pensioners, targeting money to where it is most needed. In doing so, we look at people’s income from all sources, whether employment, retirement provision, capital or savings, and provide a top-up to the level of the standard minimum guarantee—£119.05 a week, and £181.70 for couples. This may be higher if people are caring, have a severe disability or certain housing costs. As the Government have always made clear, the key priority is to ensure that everyone can be sure of a decent and secure income in retirement with a relatively generous minimum level of income guarantee, and this is what the guarantee credit element of pension credit provides. In addition, the savings credit rewards those aged over 65 with earnings, income or savings. Furthermore, pension credit is more generous than its predecessor as it does not have a limit on the number of hours someone can work and still claim pension credit. While I fully understand and appreciate what my noble friend is trying to do here, I should point out that raising the level of the disregards is likely to attract a considerable cost, particularly as this would have a knock-on effect for housing benefit and council tax benefit for pensioners. We would need to change those rules so that some people do not lose out as a result of these changes. I turn to Amendment No. 25 and its proposals with regard to trivially commuted lump sums. The amendment would introduce a new capital disregard in pension credit, housing benefit and council tax benefit for capital derived from trivially commuting a personal pension, an occupational pension, a stakeholder pension or a personal account for people aged 60 or over. The effect would be that such capital up to the current trivial commutation limit of £16,000 would be completely ignored when establishing entitlement to a means-tested benefit, and as it stands, this would be in addition to the current capital disregards that operate within these benefits. I shall start by setting out the current position. We already have generous capital rules for pensioners within the means-tested benefits. The pension credit rules are significantly more generous than those of its predecessor, the minimum income guarantee, which excluded pensioners with capital or savings in excess of £12,000. Unlike other means-tested provision, pension credit has no upper capital limit. We ignore the first £6,000 of capital, or £10,000 for those in care homes. This means that the vast majority of pension credit recipients, some 85 per cent who currently have capital below £6,000, do not have any notional income taken into account. For those with capital above £6,000, we assume income at a rate of £1 per £500 or part thereof, half the assumed rate of income under the minimum income guarantee. Indeed, my noble friend Lady Hollis outlined that. For the most part, housing benefit and council tax benefit rules for those over 60 are the same as the pension credit rules. However, they vary in one significant way—for housing benefit and council tax benefit, there is an upper capital limit of £16,000. This means that anyone with capital in excess of that sum would not be entitled to housing benefit or council tax benefit unless they get the guarantee credit. As I said a moment ago, the Government have always made it clear that a key priority has been to ensure that everyone can be sure of a decent and secure income in retirement, and these benefits play a key part in the Government’s strategy to tackle pensioner poverty. We believe that the current structure of the benefits is successful in targeting money for those vulnerable and poorest pensioners who need it most, while at the same time rewarding those who have made modest provision for their retirement. As a result of our measures to tackle poverty, we have lifted 1 million pensioners out of relative poverty. Looking to the future, we anticipate a different picture. Our reforms to the state pension and state second pension will mean that more people will receive state pensions which will lift them well above the means-tested minimum at the point of retirement. By 2050 we expect only 6 per cent of the pensioner population to be in receipt of guarantee credit only, and around half of those will have additional needs. Further, this estimate does not take account of the impact of personal accounts, so the proportion could be even less. In terms of the trivial commutation of small pension pots, very little is currently known about either the number or the characteristics of people opting trivially to commute their pension. It is therefore very difficult to determine how people might behave in the future. Any attempt to understand the costs associated with the implementation of this amendment is somewhat speculative because of the difficulties in predicting how many people in the future will be eligible for, and then actually choose, trivially commuting their pension pots. As it stands, my noble friend’s amendment raises a number of questions and issues that need careful thought and consideration. Aside from the cost issue, the amendment would create very different outcomes depending on the choices people make about saving. We need to be wary of inadvertently creating perverse incentives to save less. It would also introduce unnecessary complexity into the claims process for pension credit, housing benefit and council tax benefit based on the need to authenticate the origin of a portion of someone’s capital. Clearly these issues need further thought. While I share my noble friend’s concern to ensure that people with only limited funds to invest in pension schemes are not disadvantaged, it is important that we conduct further research on likely pension outcomes and interactions with means-tested benefits in a post-reform regime where private saving will be more accessible through personal accounts. Without this research, I do not think we should be seeking to tie ourselves to a solution that may not be the most appropriate. While both amendments are clearly aimed at providing additional support to those in low-income groups, we cannot consider them in isolation. The reform package, as presented, represents a carefully considered package of measures and one which is both affordable and sustainable. The measures already proposed will bring benefit to many of the poorest by ensuring that more people will have a full basic state pension that will be uprated in line with earnings, and greater coverage of the state second pension. It will also see the earnings link for the standard minimum guarantee with pension credit continue into the future. Taken together, these measures will provide a solid state foundation on which people can build their retirement plans. We therefore do not want to add to it at this stage. Accordingly, I ask my noble friend to withdraw the amendment.
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- Lord Oakeshott of Seagrove BayNon-affiliated
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- My noble friend made a powerful point about the sum of £4 a week frozen since 1988. Can the Minister check the figure and let us know what that sum would have risen to by now, using any average earnings index he likes?
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- Lord McKenzie of LutonLabour
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- I shall be happy to do that. However, I recall from our debate on benefits uprating a few months ago that some of those disregards have been uprated. It is not right to say that they have all been frozen. Does the noble Lord require the seasonally adjusted figure?
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- Baroness Hollis of HeighamLabour
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- We are talking about the cold weather payment. I am grateful to my noble friend for his careful reply and I thank the noble Lord, Lord Kirkwood, for his contribution. I share with my noble friend my support for what pension credit has done to address pensioner poverty—it has been terrific. In 1997 a pensioner would have had £67 a week; today they get over £119. That has been transforming, and as my noble friend has often told the House, a pensioner is no more likely to be poor than any other member of society, thanks to pension credit. Having said that, I think that two issues divide us on Amendment No. 20. The first argument put by my noble friend is that because pension credit is sufficiently generous, which it is compared with previous levels of financial support for pensioners, it follows that pensioners do not need an earnings disregard. But those are actually unconnected. I can see how the argument would apply to someone of working age, perhaps a young man in his 30s, where one is seeking instead not to make it so comfortable to remain on benefits plus disregards that he never seeks a full-time job. I understand that argument. It may not be a view I always share, but it is understandable. However, it does not apply here. We are not talking about large sums, perhaps £20 a week for a single person, given that most people on pension credit guarantee by definition are single. Working for a few hours a week produces a degree of comfort, social life and interest. It is desirable that people should pursue that. The fact that pension credit has become more generous does not answer the point that, at the risk of sounding pious, people feel the need to be useful, to be valued, and to play a full part in society. Doing a modest part-time job is a way of achieving that. We should be encouraging such efforts, as well as the extra income they produce.
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- Lord McKenzie of LutonLabour
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- My noble friend presses an interesting point. I have not seen any particular figures and neither has she—we will have to see what is available—but even if there were no figures available, that does not mean to say that no costs would be involved.
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- Baroness Hollis of HeighamLabour
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- Can my noble friend say what those costs would be? For instance, someone who may have the opportunity of a three-hour-a-week cleaning job can either say, “No, because it will come off my benefit”, or, “Yes, but I will not declare it”, in which case their benefit is paid. The third option, which is that they take the job, declare it and that is docked off pension credit, seems to me implausible. I have seen no evidence of that at all. Perhaps my noble friend can tell me how he thinks a cost would arise.
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- Lord McKenzie of LutonLabour
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- Effectively, it would arise from the latter circumstance. The proposition that there is no one in the UK who would declare that they had earnings in respect of the disregard does not seem particularly plausible either. We are dealing with hypothetical examples here. I acknowledge that getting hold of the figures might be difficult, but to assume that there would be no cost involved is not reasonable either.
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- Baroness Hollis of HeighamLabour
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- I am sure that there is at least one retired clergyman who would declare it, but my noble friend must surely accept that we are dealing with unquantifiable costs, because they are so minute. That is not how the psychology of this would work. As to Amendment No. 25, my noble friend again said that pension credit was very different from other benefits because it had no upper cash limit on the level of capital. That is, of course, true, but only in a notional sense. Although the first £6,000 is clear, thereafter you deduct £1 for every £500, which means, effectively, that you run out at between £12,000 and £15,000. So you do not need a capital limit because the notional income will get you there at any rate. Although his words are true that there is no limit, in practice there is because pension credit effectively means that, if you have capital of more than about £12,000 to £15,000 a year, the notional assumed income that derives from this will wipe out your eligibility for that pension credit. My noble friend did not refer to the comparison with the basic state pension, an issue that intrigues me on all these commutation issues. I do not think that he picked up the point in his response. It is not easy—we all had wet towels wrapped round our heads when we were trying to work out what this might imply—but if someone defers for five years and takes that deferral as income, it costs them their pension credit. If they defer for five years and take exactly the same sum as a lump sum, it costs them nothing at all; it does not affect their pension credit one iota. They have a disregard for up to £40,000, which is great, but there is an anomaly to be addressed, not only within the basic state pension but in the read-across from the basic state pension to the private sector pensions. My noble friend has not addressed this issue today and we may or may not revisit it, as the case may be. I do not have easy answers for it because I do not want to knock the notion of people coming into retirement with a lump sum that they have earned, but I suggest to my noble friend that his argument on this was not persuasive. However, given the time, I am now in a position to withdraw the amendment. Amendment, by leave, withdrawn.
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- Baroness Morgan of DrefelinLabour
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- I beg to move that the House do now resume. In moving the Motion, I suggest that the Committee stage begin again not before 8.35 pm. Moved accordingly, and, on Question, Motion agreed to. House resumed.
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