House again in Committee.
Clause 17 [ Retirement pensions]:
moved Amendment No. 53:
Page 21, line 3, at end insert—
("( ) From the commencement of this Act the basic pension shall be increased in real value by not less than 2 per cent. per annum for five years; this increase will only be paid to the extent that it exceeds the additional component provided by the State or a guaranteed minimum pension or the product of minimum contributions to a contracted-out money purchase occupational scheme or a contracted-out personal pension policy.")
The noble Lord said: I beg to move Amendment No. 53. This Bill is much concerned about pensions in the future; there is a great deal of concern lest those retiring 50 years from now should do so with nothing more than an inadequate basic pension. Hence the maintenance of SERPS, though to be reduced, and the opportunities for occupational pensions and persons pensions.
In moving this amendment, I am concerned about those already retired with little or no SERPS, and with no occupational or personal pension. After all, nobody will have a full SERPS pension before 1998 and everybody will not be on a full, though reduced SERPS pension until well into the next century—in fact, not until all those born before 1933 have died.
In their comment in the Green Paper, Age Concern said:
"Age Concern believes that the basic state pension is too low, as do 69 per cent. of the public, according to a recent MORI poll (April 1985). It should be raised to a level which permits pensioners to live and participate fully in society."
The House of Commons Social Services Committee, in their report on the age of retirement published in 1982, said that many, and in particular those with poor employment records, would receive little or no additional component. They said that the future of those pensioners was of major concern. There would emerge a gap in pension levels, particularly between those currently retiring and those due to retire in and after 1998.
They went on to say that they were convinced that some sort of assistance for older and poorer pensioners was inevitable and that future governments, of whatever political complexion. would have no choice but to regard this as one of the first calls on any additional resources.
The Social Security Advisory Committee in their report for 1982–83 quoted these words and said that they shared the Social Services Committee's conviction. They said that the special problem of lower income among those who had not had the opportunity on grounds of age to take advantage of the earnings related element was a transitional one. "We believe", they said, "it needs to be tackled in a way which will not add to the long-term costs of the scheme or affect its build up for younger contributors".
This amendment is designed to tackle the problem precisely on that basis. First, it would increase the real value of the basic pension by 2 per cent. per annum for five years, approximately a 10 per cent. increase in real value achieved over five years. That is a modest enough improvement, and it may be said that the percentage may be higher and the term longer; but, after all, I am seeking to persuade the present Government.
Secondly, when someone is in receipt of SERPS or GMP or pension from minimum contributions to money purchase occupational schemes or to a personal pension scheme, the increase in real value will only be paid to the extent that it exceeds that additional component. Thus if the increase in real value—just to take easy figures—is worth £200 per annum and a pensioner is receiving £100 of additional component, he would only draw £100 extra as a result of this amendment. If the additional component amounted to £200, he would draw nothing, but if he had no additional component, as millions now retired have not, he would draw £200. Thus the amendment would help the poorest. I estimate that the cost in the first year would be about £320 million.
In considering that sum, we also have to consider the view of Age Concern, of the House of Commons Social Services Committee and of the Social Security Advisory Committee that the basic pension will have to be increased. The cost would build up for five years and then gradually reduce so that eventually it became minimal. The proposal thus complies with the Social Security Advisory Committee's view that the problem should be tackled in a way which will not add to the long-term costs of the scheme or affect its build-up for younger contributors. The Government of the day might want to continue the increases for longer than five years, but even an increase over five years would do something to enable pensioners to catch up with earners. Pensioners are falling behind as pensions are linked to prices whereas earnings have been increasing consistently at a faster rate than prices. If this continues the basic pension will become a smaller and smaller proportion of the total state pension. To solve all these problems I hope that the Government will feel able to accept this amendment. I beg to move.
I rise to support from these Benches the amendment moved by the noble Lord, Lord Banks. It must be a matter of concern to everyone that the position of people who are existing simply on the basic state pension—and there now are many of them—should be in many instances in penury. The noble Lord, Lord Banks, has already referred to representations made by reputable organisations such as Age Concern. What he is suggesting seems to us to be an extemely modest suggestion under which there would be an increase in the real value of the basic state pension for the period mentioned in the amendment. By real value he means, I take it, that not only would the basic pension be increased by the inflation rate in regard to prices, but there would be an increase on top of that. I should very much like to see this, and therefore I believe that this amendment should be supported.
All of us would like to see an increase in the basic state old-age pension. Indeed, I believe I share with the noble Lord, Lord Banks, the belief that were we starting from scratch we would abolish SERPS and increase the basic state old-age pension, which would be far more equitable as it would treat all our citizens alike, whatever the work or employment pattern of their careers. But the fact remains that it is inescapable that we are sharing the rice in the rice bowl and the greater one increases retirement provision the greater one raises regressive taxation. It is inescapable that the higher the pensions paid the more difficult becomes the problem of the poverty trap. There is no such thing as a free pension: it has to be paid for by the working. What we are talking about in simple terms is how we divide the rice bowl between rewarding the working and rewarding the retired. This is the dilemma that lies at the basis of all our discussions tonight.There are many people who believe that once pensions are funded in some way this no longer affects the economy. But one man's tax privilege is another man's tax rise. It all comes back to the division of the rice bowl. While I should be the first to support a fundamental increase in the old-age pension—indeed, governments always have done their best to increase this in line with inflation, or more importantly in line with what the nation can afford—it would be wrong by statute to build in an automatic increase over a period of years. While I sympathise totally with the noble Lord, Lord Banks, in the terms of his amendment, in practice it would be impracticable and it should be left to the discretion of governments, because at the end of the day it falls to the Government to share out the rice equitably. In that case they would be right to oppose this motion and to review the level of the old-age pension regularly from time to time but without automatic increases being written in by statute.
I should like to say how much I agree with the wise words of my noble friend Lord Vinson. The noble Lord, Lord Banks, seeks to provide a substantial real increase in the value of basic retirement pension, but to pay it only to those who do not have any, or only a small, earnings-related pension. This device is similar to the guaranteed additional component discussed during the 1970s. It would also be in line with the recommendations of the Social Services Select Committee in another place, which in 1982 recommended action to narrow the income gap between those who had already retired with little more than the basic pension and those who would be receiving substantial extra sums under the earnings-related pension scheme.I have much sympathy with the noble Lord's objectives, but I have to say that the amendment would not be acceptable. First of all, it would be costly—an additional £1,310 million in the fifth year. In the first year costs would be an additional £270 million. Secondly, it would complicate the pensions awarding arrangements, though I would not wish to make too much of that. But, thirdly, I do not think it would achieve its aim. Under any system where part of a pension is tied to earnings-linked contributions, some people will do worse than others because they have not earned, or not earned as much. That will be just as true in forty years' time as in the next five years. But under the noble Lord's scheme as expressed in this amendment, only the product of 10 per cent. of the basic pension after five years from 1988 will be available to help narrow the gap between the pensioner with the basic pension and the pensioner with high additional pension. Since it is currently possible to receive additional pension up to £23 a week, and 10 per cent. of the basic pension is £3.80, the noble Lord would be setting up a rather complicated scheme to produce a mouse. The Government are very conscious of the need to protect pensioners' living standards, and we believe our record is a good one. But we do not believe an amendment of this kind is the right way to help those pensioners who are less well off.
May I add a word to the arguments that have been put forward both by my noble friend and by the noble Lord, Lord Banks? Yesterday I had a meeting with 28 longstanding traditional welfare organisations, several of which have been in existence for over 100 years—the Soldiers', Sailors' and Airmen's Families Association; the Family Welfare Association, and so on. Many of them deal with the problems of the elderly. All of them say that they find greater poverty among the elderly than they have known in recent years. I certainly should not say in the last 100 years—nothing like that. But there is no doubt that many of these organisations working for the elderly are quiet charities which have been doing their best. They have come together because of their concern, not just about the state of welfare of the elderly but about other things that we shall deal with later in the Bill. I do not believe that the noble Baroness should feel any sense of complacency about the feelings and the degree of poverty and hardship that exists among many of our elderly in society.The second point I should like to make is to remind the noble Baroness and the noble Lord, Lord Vinson, that while this Government have rightly and marginally more than covered pensioners' pensions against the rising rate of inflation—the rate of inflation is lower than it has been for some 15 years, all credit to be given—until this Government came to power pension increases, as the noble Baroness will know, were linked with the level of earnings rather than the level of inflation. One of the things that must trouble this Government at the present time is that earnings are rising so much faster than inflation or production; and it will have its consequences. Had legislation not come in that linked the pension to inflation proofing rather than earnings-level proofing, pensioners would now be getting a much more substantial increase than they are. One way to do it is as has been suggested by the noble Lord, Lord Banks. Of course, the noble Baroness says, and no doubt others of her supporters will say, "We can't afford it. It's a matter of priorities". We have to ask ourselves as a society what our priorities are and where in our priorities is the welfare of the elderly compared with all sorts of other things that the Government have to consider. The welfare of the elderly should come very high and I believe that this five-year proposal with the 2 per cent. increase which has been suggested by the noble Lord, Lord Banks, would at least make a contribution to easing poverty among the elderly in our society.
That was a very interesting speech and we all agree that we want to see as much help as possible for the elderly. But I do not think that this amendment is the way to do it. The elderly certainly suffered terribly during the years of very high inflation when we had 20 per cent. inflation. That is what cut back the savings that people had made for their old age—people on a fixed income—and they were terribly hard hit during those years. This proposal, as I see it, would only perpetuate the poverty trap for the elderly and, indeed, for the whole of our society because it would mean increasing the rate of taxation in order to meet the additional financial commitment that is set out.I think that instead it is far better to deal with the elderly through the social fund, which comes up at a later stage in this Bill and which is geared to give real help to those in real need; and many of the elderly are in real need. If we could also get through to many elderly people the feeling that they are entitled to whatever help the Government can give them, it would be of great importance. I happen to be the first ever president of the War Widows' Association. I am so impressed by the frugality and pride of these women. They will re-use an envelope two or three times without thinking that to most people an envelope is nothing. To them an envelope is an important thing. They watch every penny. These women are so proud of managing that they hate to ask for anything. If we can get through to them the point that they will be quite entitled to take their needs to the social fund and get help in that way, that will be far better than building in anything that is suggested in this amendment. For that reason I could not support this amendment.
May I respond very briefly to the points very eloquently made by the noble Baroness. It is quite right that elderly people are very proud and do not like to go and ask for means-tested benefits. This is the advantage of the amendment that has been put forward by the noble Lord, Lord Banks. The noble Baroness says that it is an entitlement, but it is an entitlement only when you have proved the extent of your poverty. That is the case. To me that does not mean an entitlement. An entitlement is something that the state accords to you because you are an elderly person and not because you are poor. That is why I think it should be in this part of the Bill and not simply related to the social fund.
I thank the noble Lord for that reply. I should like to come back again and say that to my mind if it is something which is given as a blanket hand-out to everyone, it loses its merit because it is so uniform that it does not help those in real need.
May I come back to what the noble Lord, Lord Ennals, has said. The Government are certainly not complacent but, as my noble friend Lord Vinson said, it is better to take decisions on the level of pensions at the time that uprating decisions are taken than to enshrine a fixed increase in a statute, regardless of what the state of the economy is at the time. As my noble friend Lady Gardner has said, our success in the fight against inflation is the best news that pensioners have had.
I should like to thank the noble Baroness, Lady Turner, and the noble Lord, Lord Ennals, for their support of this amendment. I regret that the noble Baroness, Lady Trumpington, has felt that she must turn this down along with most other things. I think that she has to answer the argument—and I do not think that she has—put forward by the three bodies that I mentioned. It may be said that Age Concern, excellent organisation that it is, has obviously a vested interest in looking after the interests of old people. When it comes to the Social Services Committee in another place and the Social Security Advisory Committee, they are grappling with problems across the whole range of social security.Both those bodies have felt it necessary to say, "Here is a problem which, as far as we can see, governments will have to tackle, will have to take up, will have to solve". The noble Lord, Lord Vinson, said that it would be nice to do something, but do not let us put it into the Bill; let us leave it until the time when the Government feel they can to it. We know that governments do not often have these feelings. Therefore, if you want to make some progress, it is essential to get it written into the law. If we were to have this particular system which has been suggested, which has the merit that it follows the guidelines suggested by the Social Security Advisory Committee, I think it would be essential to introduce it by means of statute. I do not see how we can have the offset otherwise. Incidentally, the noble Baroness, Lady Gardner of Parkes, has said that there is not much point in giving a benefit if it is uniform. We could argue about that. But this particular benefit is not uniform because of the offset, and so that particular argument of hers would not seem to hold. Then the noble Baroness complained that it is too much money producing too little result. Of course, we could have it higher if she would prefer that. The £1,310 million extra by the end of five years, introduced over that period of time, is, she says, something which we cannot contemplate. Yet we contemplate paying out much more than that for pensions in the next century. We hold up our hands in horror at the thought that people in the year 2030 or 2040 may not have these pensions that we think are so desirable. But the only people whose pensions we are asked to pay for are the people who retire today. We are not going to pick up the tab for paying the pensions in the years 2030, 2040 or 2050. We are picking up the tab for paying today's pensioners. Yet we expect other people to do more in the future than we are prepared to do today. This particular amendment is rather important to us on these Benches. We have made it clear that while we are prepared to talk about modification of SERPS and while we realise that there could be a problem about expense in the middle of the next century, we cannot agree to it unless there is some increase in the basic pension. Therefore, this affects our view on other amendments which are to come later and on our whole attitude to this part of the Bill. That being so, I feel that it is essential—
I hope the noble Lord, Lord Banks, will forgive me for coming back again. He said that we, this generation, will be paying for the pension. Of course, he is absolutely right. But the point that I think he should dwell on is that it is not the better off in society who will be paying for it; it is actually the very low earners in society, those who are the victims of the poverty trap. The higher the pension you pay, the more rice you dish out to those in retirement, the less rice there is to pay for those who are actually earning.This is an inescapable problem that all governments try to solve. Of course we should like to pay our pensioners more but, equally, had the noble Lord, Lord Ennals, just come from a meeting of the low-paid who were complaining that their rate of tax was far too high, he—and I am sure we all would agree—would wish to see the lower-paid pay less tax. We know the dangers of the poverty trap and how socially it is incredibly unjust. So we have two injustices to deal with: the injustice of not paying pensioners enough and the injustice of taxing the low-paid too much. How do we strike the balance on this? I merely suggest that the right way to do it is for governments to try to take that decision relative to the good fortunes or bad fortunes of the economy at the time and not to enshrine it in an Act.
If what the noble Lord says has any validity, it would seem to me to apply now, yesterday and tomorrow just the same. It does not seem to be an argument that is related to our particular situation at the moment. It would seem to be an argument against pensions of any size at any time and one that you could bring out just as strongly against pensions in the year 2030 as pensions this year. The noble Lord nods: that is so—yet the Government are placing an obligation, without knowing what the circumstances will be at that time, on people 50 years ahead to pay at certain rates. They are not at all concerned about it and they are very anxious that they should not be involved in paying this bit extra at the present time. I feel this is a matter on which I should like to test the feeling of the Committee and that I must therefore press the amendment at this stage.
On Question, Whether the said amendment (No. 53) shall be agreed to?
Their Lordships divided: Contents, 35; Not-Contents, 57.
DIVISION NO. 4
|Airedale, L.||Jeger, B.|
|Banks, L.||Kagan, L.|
|Blease, L.||Kilmarnock, L.|
|Buckmaster, V.||Lloyd of Kilgerran, L.|
|Cledwyn of Penrhos, L.||McNair, L.|
|Crawshaw of Aintree, L. [Teller.]||Nicol, B.|
|Darcy (de Knayth), B.||Parry, L.|
|David, B. [Teller.]||Pitt of Hampstead, L.|
|Ennals, L.||Rochester, L.|
|Ewart-Biggs, B.||Seebohm, L.|
|Ezra, L.||Serota, B.|
|Faithfull, B.||Stoddart of Swindon, L.|
|Grey, E.||Strauss, L.|
|Hacking, L.||Taylor of Gryfe, L.|
|Hanworth, V.||Turner of Camden, B.|
|Hatch of Lusby, L.||Underhill, L.|
|Henderson of Brompton, L.||White, B.|
|Allenby of Megiddo, V.||Cork and Orrery, E.|
|Ampthill, L.||Craigavon, V.|
|Auckland, L.||Davidson, V.|
|Belstead, L.||Denham, L.|
|Birdwood, L.||Dilhorne, V.|
|Boyd-Carpenter, L.||Donegall, M.|
|Brabazon of Tara, L.||Dulverton, L.|
|Brougham and Vaux, L.||Elton, L.|
|Buckinghamshire, E.||Enniskillen, E.|
|Caithness, E.||Gardner of Parkes, B.|
|Carnegy of Lour, B.||Gisborough, L.|
|Colville of Culross, V.||Glanusk, L.|
|Glenarthur, L.||Munster, E.|
|Gray of Contin, L.||Rankeillour, L.|
|Hanson, L.||Renton, L.|
|Harvington, L.||Rochdale, V.|
|Henley, L.||Rodney, L.|
|Hives, L.||St. Aldwyn, E.|
|Hooper, B.||Sharples, B.|
|Inglewood, L.||Skelmersdale, L.|
|Kaberry of Adel, L.||Swinton E, [Teller.]|
|King of Wartnaby, L.||Tranmire, L.|
|Layton, L.||Trumpington, B.|
|Long, V. [Teller.]||Vinson, L.|
|Lucas of Chilworth, L.||Whitelaw, V.|
|Macleod of Borve, B.||Windlesham, L.|
|Margadale, L.||Young, B.|
|Mersey, V.||Zouche of Haryngworth, L.|
Resolved in the negative, and amendment disagreed to accordingly.
moved Amendment No. 54:
Page 21, line 13, leave out from beginning to end of line 14 on page 22, and insert—
The noble Baroness said: Clause 17 of the Bill is the clause which seeks substantial amendments to the state earnings-related pension scheme. A major feature of the scheme, as everyone knows, is that entitlement is based on the best 20 years' earnings rather then averaged out over a lifetime. Our objective on these Benches is to try to retain this vital element of SERPS. This was always seen as a major advantage to certain groups. Those were, and are, women who spend years out of the workforce with domestic responsibilities, the disabled who have a chequered work pattern, manual workers, some of whom also have a chequered work pattern, the unemployed and indeed everyone who for one reason or another could not remain in employment continuously over a normal lifetime of work.
The greatest benefits of the scheme in any event would not come into effect until 1999: yet it is that date on which the Government have chosen to end the "best 20 years" rule. Clause 17 of the Bill provides for SERPS to be calculated over a lifetime's average earnings for contributions over a lifetime. Clearly this will disadvantage those whom SERPS was originally meant to assist.
A great deal of stress has been laid on the fact that there is said to be no urgency about any of this. The SERPS protection does not cease to apply until 1999, which is when the "best 20 years" rule will disappear. This is made clear in the Notes to the Bill with which we have been supplied, and it has misled many people into thinking that people working today will not be affected; but they will be. The pensions of many young and middle-aged men and women will be affected. For example, a 20 year-old man in 1988 who is unemployed from 1988 until 1993 will lose five years from the pension he will receive in 2033. The old SERPS would not have disadvantaged him in this way.
It is true that the Bill now before us provides some protection for certain people, but it does not provide anything for the unemployed. Moreover, the effect on women who work part-time and in low paid work for some years during their working lives will not be a good one. There has been a welcome acknowledgement by the Government that special protection is needed for those bringing up children, for the disabled themselves and for those caring for disabled people. However, they also have periods of low earnings outside the home and those years of low earnings would reduce the ultimate value of the pension.
This has not escaped the attention of the Equal Opportunities Commission. In fact, they have already made a statement on this question in which they say:
"In principle, the plan to apply home responsibilities protection (HRP) to SERPS is designed to recognise women's different working patterns. However, this new scheme looks set to discriminate against the majority of married women, who, after starting a family, return to part-time work.
"This is because under the new system a woman who does part-time work for a large part of her working life will receive a smaller (SERPS) payment than a woman who has chosen to claim the new home responsibilities protection for a greater number of years, but who has worked full time for the rest of her working life."
The commission suggest that the way out of this kind of anomaly would have been for the Government to leave the best 20 years provision alone.
If we look at some of the arguments that have been advanced for emasculating SERPS—because that is what it is—I do not think that they stand up to real examination. The most common statement is that we cannot afford the old-type SERPS. The Government Actuary is frequently called in aid here, yet the rate of growth predicted by the Government when talking about social security provision is different from and lower than that referred to when they are talking about rates of growth in other connections.
Even so, the argument that we cannot expect future generations to pick up the bill is really not a worthy one. Each generation relies on the work that has been done by previous generations. The standard of living that we enjoy, the systems of government that we have inherited and the material benefits of this generation compared with previous ones all are due to the work of our predecessors. Each generation has an obligation to fulfil to future generations. Incidentally, I do not think we are fulfilling it very well at the present time to those working people now retired, though those of us who voted for the amendment which has just been before the Committee attempted to do so. But the whole idea of SERPS was to lift future generations above that standard.
It is not an argument to say that provision can be made through private personal pensions. Many of the people covered by SERPS now have not the expertise—indeed, why should we expect them to have?—to make choices between the various schemes which will be on offer after SERPS has been emasculated. Pensions are provided from total resources, whether publicly or privately provided, and what the Government are really saying is that we should not commit ourselves to seeing that those who come after us, and who are now at work or beginning to work, should have a reasonable standard of living when they retire. The standard of living offered by SERPS is, after all, not a luxurious one. It is a basic earnings-related one. For that reason, it should not be allowed to disappear. The object of this amendment is to preserve the best 20 years provision and I therefore commend it to your Lordships. I beg to move.
It would seem sensible, having heard the noble Baroness introduce this amendment, to speak also to Amendment No. 56, because that covers exactly the same points as the noble Baroness has made. Is that acceptable to the Committee or does the Minister prefer not to do that?
I think we would rather not, because we have Amendment No. 56 grouped with a different set of amendments.
I will speak later.
If the noble Baroness is not going to expand the argument, and having sat like a Trappist monk until the last amendment, perhaps I may say a word on an issue on which I feel very strongly. Having myself been involved in the introduction of the new pension scheme as Secretary of State, I want to express myself and to state the arguments.I think the noble Baroness will remember that on Second Reading on 3rd June at col. 683 of the Official Report she said:
I notice the words "so far", and therefore I live in hope—"I know that some concern has been expressed in another place about the position of other groups who currently stand to gain from the "best 20 years" rule but for whom we have not so far announced any special protection"—
We are now doing so. When the pension scheme, SERPS, that is now being amended was introduced, the best 20 years formula was an essential part of what we sought to do. I would remind the Committee that, at the time when we introduced the best 20 years formula in 1975, it—as well as the rest of that legislation—was supported totally by the Conservative Opposition and not totally by the Liberal Party, as I almost always have to say. There was a very wide measure of support for the Bill and for the principle of the best 20 years. It was recognised that a pension formula based on the individual's lifetime average earnings could not produce adequate pensions for people whose working life was interrupted by periods of sickness, as may have applied to many, by unemployment—and we had not contemplated at that stage that it would be anything like its present level or what looks like being its future level—by domestic responsibilities or in cases where earning capacity was reduced by disability. Obviously the noble Baroness was aware of these problems when she made the points that she did in the Second Reading debate. Taking into account only the best 20 years' earnings would mean that people in all these situations would be able to earn a decent pension—that is what it is about—an average of which even the best occupational schemes could not match. One of the main aims of the 1975 scheme was to give a better pensions deal to women, whose careers are usually interrupted by pregnancy and child rearing and in relation to whom in so many cases a professional career is given up to looking after elderly parents, as people are living so much longer these days—elderly people or disabled members of the family. The best 20 years formula was an important element in the achievement of this aim. Together with the provisions for home responsibility protection, it enabled a woman to earn a full pension if only half her working life had been spent in full-time paid work. It may be said—and perhaps the noble Lord, Lord Vinson, is waiting to leap up and say so, though I have a lot more to say before he does, so he must contain himself—that we must not be too generous. The noble Lord will know that by international standards the best 20 years formula is not abnormally generous. In France, for example, the pension formula was changed as long ago as 1971 to give pensions based on the best 10 years' earnings, so we are falling far behind the arrangements of our friends and competitors—whichever way one likes to look at France. One advantage of the best 20 years formula is its simplicity. The scheme as a whole has been criticised as being unduly complicated, but this aspect of it is very clearly understood. It is expressed in only 16 words in the Social Security Pensions Act 1975, and I quote:"in particular the long-term unemployed, some disabled people, mothers returning to part-time work. I am sure we shall have ample opportunity to debate the situation of particular groups when we come to consider Clause 17".
Compare this with the algebraic complications of the present provision. I should love to hear the noble Baroness actually explain exactly what is set out on page 21 of the Bill. Perhaps she will do so in reply to me. But if one is talking about simplicity, I must say that the words I quoted are a little simpler than those set out in the new scheme. The reason for the complexity is that, having decided to base the pension on lifetime's earnings instead of the best 20 years, the Government realised that this would create major anomalies and injustices. In fact, not surprisingly, it would penalise precisely those people whom the best 20 years formula was designed to protect. The clause makes a rather feeble attempt to remedy that situation. It does this by leaving certain years of a person's working life out of the total number of years over which the lifetime's earnings are to be averaged. That is what all this algebraic stuff is about. But it simply creates new anomalies. Arbitrary distinctions are made between years that are included and those that are excluded. The most blatant injustice is that years of unemployment will count as part of the working life. Pension rights will be protected to some extent during periods of long-term sickness or domestic responsibility, but not at all during periods of unemployment. How can that be fair? No justification has been offered for this latest discrimination, if I may call it so, against the unemployed. The Bill provides special protection for some groups but not for the unemployed. The Government have resisted all attempts to extend protection to these people, though the words of the noble Baroness at Second Reading give me hope that she may say that the Government will come forward with some protection, particularly for the groups I want to protect. During the Committee stage in another place the Minister of Health said, (and I quote from Standing Committee B, col. 439):"or, if there are more than 20 such surpluses, of those 20 which are the largest".
the unemployed"While I do not in any way suggest that there may not be a problem in relation to this group"—
this will commend itself to the noble Lord, Lord Vinson—"in the early part of the next century, I think it is a problem"—
This is in a sense a very persuasive agrument, but it totally disregards the anxieity of people who are unemployed now and who have no guarantee that a government at the end of the century will change the rules to protect them. Again, this Government have hidden behind a statement, repeated frequently by Ministers, and have refused to recognise the injustice of the mathematical calculations used for the assessment of those people who are disabled or are caring for children, or disabled people who try to work within their capacity or who need to work part-time but who earn above a certain low earnings limit. In those circumstances, they will not receive protection and the years of low earnings will serve to reduce the pension. The injustice of that situation will then be apparent, in that those who work and contribute will have a lower pension than those who do not go to work. How often have I heard Ministers speaking about not discouraging people from going to work? The clause that we are seeking to amend does precisely that. Equally indefensible is the fact that under the proposed formula many people will find that by taking a job at a lower rate of pay, or by working part time, they will lose part of the pension that they have already earned, because each year of low earnings will reduce the average on which the pension is based. That will particularly affect married women and disabled people considering whether to return to work. I hope that the noble Baroness, who showed a measure of understanding in the quotation with which I started this brief intervention, will realise that now is the moment, in Committee on Clause 17, to deal with precisely the issues she recognised that we would want to deal with."that exists at that time and is not one which we need to settle at this time".
I feel somewhat handicapped in replying to the noble Lord, Lord Ennals, and the noble Baroness, Lady Turner of Camden, because we share so many of the same goals. We want to see that those who have chequered earnings have a higher rate of pension. Incidentally, I may not have had chequered earnings but I have had a chequered career, which is a wholly different thing.If I may say so, the arguments of those opposite are misplaced. The whole time they are arguing for those who are lucky enough to have been eligible to get into SERPs at all. One is talking about only half the working population. The other half are not in SERPs. They also have chequered earnings—they have no earnings at all. They stay at home to look after handicapped mothers. They live in rural areas where there are no jobs. They have large families and cannot go out to work. They live nowhere near créches and so could not go out to work even if jobs were available. So the whole time, this marvellously genuine gush of compassion is directed at only half the population. If we are really concerned, then we must look at the whole population who have chequered earning patterns. We must then remind ourselves—and I am sorry to keep returning to the rice bowl analogy—that if we do not somehow try to balance the rice that we give to those who have been fortunate enough to be in work, then we will find that there is less rice to give as a general rise in the general old-age pension. I want to see—and I hope that in future generations we will see, and that the economy will be able to support it—a major rise in old-age pensions that will treat all those people for whom we are so concerned alike and uniformly. I hope that it will be possible to so treat those who have not been fortunate enough to be in work. If we do not accept—
The noble Lord recently asked the noble Lord, Lord Banks, to give way. Will he now give way?
I am most grateful. The noble Lord was saying that only half the population is included in SERPs. I would ask the noble Lord why that is so. We should like to see included the whole of the population who have had earnings at any stage during their working lives. That can apply to people who were at some stage unemployed and who were at some stage employed. It can apply to disabled people who may have gone through training courses, who have been earners but who are now disabled and unable to work, but who may perhaps return to part-time work. It could apply to women and all the other categories about which I was speaking, who are all people we want to see within SERPs.The noble Lord says that those people are not within SERPs, and when he adds the phrase "gush of compassion", I do not know whether he is talking about me or about the noble Baroness, because I have not seen much of a gush of compassion from the other side of the Committee in this debate.
I was speaking about the state earnings-related benefit. If one does not happen to earn, then one does not get the benefit. There is a whole raft of our citizens, particularly women, who do not earn and who are not in a position to earn. We are talking about how we look after the one half of the population who earn, and who relate some pension to their earning capacity. I am equally concerned about the other half who do not earn, in trying to relate some pensions to them.If one is sharing out the rice in the rice bowl then it would be more sensible to say that those who have been lucky enough to earn have had both earnings and now a pension on top, but for those who have not been lucky enough to earn—the other half of the population—then we must do our best to give them more rice and raise the old-age pension. I should like to achieve the same goals as noble Lords opposite would like to achieve, not by keeping the rate of SERPs reward higher, but by switching that rice to the general level of old-age pension. Then we could treat all the cases over which we share compassion uniformly and fairly.
This amendment does very little to reduce the huge cost of SERPs which would be passed on to future generations of contributors in the next century. Admittedly, it does contain an element of pruning by eventually reducing SERPs pensions from 25 per cent. of earnings down to 20 per cent. of earnings over a 10-year transitional period from 1999. But the most extravagant and badly targeted feature of the scheme, the 20 best years rule, is left untouched. It means in effect that everyone who has been in the scheme for the first 10 years from 1978, whatever their age, will be half way toward a full SERPs pension by 1988. They will already have earned a pension based on 12½ per cent. of their earnings over those years. Ten years later they will have earned a full SERPs pension, the remaining years only serving to top up that entitlement for any years in which the earnings come within the best twenty. Meanwhile, the occupational pensions of better-off people in good occupational schemes will be being indiscriminately topped-up by the state, because GMPs will have been building up more slowly over the whole working life, and the state pays the difference between the two.Our proposals for protecting people who have qualified for home responsibilities protection or national insurance contribution credits for incapacity or with invalid care allowance will be much more accurately targeted on the people we want to help, and will avoid the indiscriminate excesses of the 20 best years rule. The amendment rightly preserves SERPS rights earned before April 1988 on the 25 per cent. basis, and we have already provided for this in Clause 17. Likewise, we have provided for a gradual transitional reduction from the 25 per cent. rate down to the 20 per cent. rate. But we cannot agree to retaining the 20 best years rule, which is the single most expensive feature of the scheme. Its abolition will save £5.9 billion in 2033–34 and accounts for half of the total savings which our proposals for SERPS will produce—savings which will help put SERPS on an affordable and sustainable footing for the future. The Government actuary's central assumption for earnings is that they will grow at 1½ per cent. a year above prices. This is a little less than experience since the last war but better than the record for the last 100 years. The Government actuary has given us a range of public projections of future pension costs taking different assumptions about growth. When we are talking about burdens on future generations we have a responsibility to use realistic projections. Unemployment is assumed by them as at 6 per cent. We should be accused of over-optimism if we assumed a lower figure, given present levels. The demographic assumptions are based on recent trends in mortality and an optimistic assumption that fertility returns to a 2:1 per mother replacement rate (compared with 1.75:1 now). We must be cautious when making assumptions for long-term commitments like SERPS. It would be an abdication of responsibility to base plans for the future on the most optimistic assumptions. At the time we made clear our reservations about pay-as-you-go schemes, which are a blank cheque drawn on the future, and my right honourable friend the Secretary of State warned specifically that the financing of SERPS could become extremely onerous. The latest projections have confirmed how right he was. I think it was the noble Lord, Lord Ennals, who mentioned the French scheme; but comparisons with other countries are notoriously difficult, and indeed can be misleading because their schemes both in funding and in benefits are all on different bases, and one must also take account of other provisions. However, our total spending on all programmes for the elderly compared with the gross domestic product is the third highest in the European Community. I suggest that that is a much better comparison. I have to say that when I was in Athens last autumn for a social security conference the worry expressed by all the other European nations concerning their pension plans and the situation for the future was more serious than ours. They looked at our plans with the greatest interest. They too have aged populations. With regard to part-time married women workers being worse off working than not working, we have seen the various representations made about the possible effect of the special SERPS protection in Clause 17 on women returning to part-time work, having stayed at home to bring up children. I must say that the examples quoted tend to use unrealistic earnings levels and work patterns to produce exaggerated effects. Nearly half of all part-timers earn below the national insurance lower earnings limit. If they have dependent children under 16, they will continue to get the full benefit of the special SERPS protection. It is also at least arguable that women with higher earnings could be expected to make more provision for their old age than women with no earnings. The important points to bear in mind are, first, that we already have powers in the Bill to make the regulations which could deal with the problem; and, secondly, there is no great urgency about this. No one's state pension will be affected until 1999 and there is plenty of time to smooth away rough edges between now and then. DHSS records are held in a way which would allow full and effective backdating of additional protection if that were considered necessary in the future. The noble Lord, Lord Ennals, referred to a lack of simplicity in Clause 17. I agree that the material on page 21 of the Bill appears to be rather complicated. The reason for that is that we have ensured that there are generous transitional arrangements for reducing SERPS from 25 per cent. to 20 per cent. of earnings over a long period. Transitional protection is by nature complicated, but I do not accept that the regulation-making power for protecting people's SERPS rights is complex. It is a wide power, deliberately short on details. We have endeavoured to do that in the fairest way, very much on the rice-bowl system expounded by the noble Lord Vinson. It is no good shouting out emotional statements and getting carried away by the rhetoric of the thing. One has to look at this from a sensible but a caring point of view, and we have done both.
I quoted an important statement that the noble Baroness made on Second Reading when we were talking about the unemployed. It was that she did not in any way suggest that there might not be a problem in relation to this group in the early part of the next century. She thought that it was a problem which could be sensibly examined in relation to the unemployment problem that existed at that time and was not one which we needed to settle at this time. She said that it was an issue that we could look at in Committee. Did she not at that stage give us hope that there might be a morsel thrown towards us?
One man's idea of a morsel is another man's idea of something quite different. I think that the noble Lord must have misunderstood me.
I am rather disappointed with the noble Baroness's response to the amendment. As she rightly said, its effect is to retain the 20-year rule. We have not sought to change the proposal to reduce the accrual rate from 25 per cent. to 20 per cent. Although we do not like it, we have accepted that that is not part of this amendment. We are anxious to retain the best 20 years provision because we think that it is important. I should almost describe it as the heart of SERPS. It is one of the reasons why when SERPS was introduced it was welcomed on all sides of the House. It was seen that it would provide cover for people who hitherto had not had adequate pensions cover in occupational schemes or by private provision.It was an arrangement under which people who had a chequered work pattern and who had spent time out of the work force and then returned into it would nevertheless be able to have a pension entitlement based on their best 20 years' earnings instead of having them averaged out as is now proposed. The familiar arguments have been advanced, which I do not accept, that we have somehow to cut the cost of SERPS because we cannot afford it. The demographic considerations to which the noble Baroness referred were the same 10 years ago as they are now. I do not accept that it has suddenly been discovered that we have somehow to make a change because of the demographic prognostications. I believe that we are under an obligation to those who come after us to ensure that we leave with them a pensions arrangement provided by the state which will ensure that they can look forward to at least a reasonable level of retirement benefit. If we abandon the 20-year rule, we shall be unable to do that. That is a great pity. I am reluctant to divide the Committee but I intend to because it is important that we should have an opportunity to test the Committee's views on this most important element of SERPS. I therefore intend to press the amendment.
On Question, Whether the said amendment (No. 54) shall be agreed to?
Their Lordships divided: Contents, 28; Not-Contents, 55.
DIVISION NO. 5
|Banks, L.||Kilmarnock, L.|
|Blease, L. [Teller.]||Lloyd of Kilgerran, L.|
|Buckmaster, V.||McNair, L.|
|Cledwyn of Penrhos, L.||Masham of Ilton, B.|
|Crawshaw of Aintree, L.||Parry, L.|
|Ennals, L.||Pitt of Hampstead, L.|
|Ezra, L.||Rochester, L.|
|Grey, E.||Seebohm, L.|
|Hanworth, V.||Stoddart of Swindon, L. [Teller.]|
|Hatch of Lusby, L.|
|Henderson of Brompton, L.||Taylor of Blackburn, L.|
|Houghton of Sowerby, L.||Taylor of Gryfe, L.|
|Jeger, B.||Turner of Camden, B.|
|Kagan, L.||White, B.|
|Ailesbury, M.||Brabazon of Tara, L.|
|Allenby of Megiddo, V.||Brougham and Vaux, L.|
|Ampthill, L.||Buckinghamshire, E.|
|Belstead, L.||Caithness, E.|
|Boyd-Carpenter, L.||Carnegy of Lour, B.|
|Colville of Culross, V.||Layton, L.|
|Cork and Orrery, E.||Long, V. [Teller.]|
|Craigavon, V.||Lucas of Chilworth, L.|
|Craigmyle, L.||Macleod of Borve, B.|
|Davidson, V.||Margadale, L.|
|Denham, L.||Mersey, V.|
|Dilhorne, V.||Munster, E.|
|Donegall, M.||Onslow, E.|
|Dormer, L.||Rankeillour, L.|
|Dulverton, L.||Renton, L.|
|Elton, L.||Rochdale, V.|
|Enniskillen, E.||Rodney, L.|
|Gisborough, L.||Sandford, L.|
|Glenarthur, L.||Skelmersdale, L.|
|Gray of Contin, L.||Swinton E. [Teller.]|
|Greenway, L.||Tranmire, L.|
|Hanson, L.||Trumpington, B.|
|Harvington, L.||Vinson, L.|
|Henley, L.||Whitelaw, V.|
|Hives, L.||Windlesham, L.|
|Hooper, B.||Young, B.|
|Inglewood, L.||Zouche of Haryngworth, L.|
|King of Wartnaby, L.|
Resolved in the negative, and amendment disagreed to accordingly.
moved Amendment No. 54A:
Page 22, line 4, after ("contributions") insert ("or earnings").
The noble Baroness said: This is a consequential, technical amendment that flows from the proposals in Clause 72 and Schedule 8 which relate to earnings factors. Under those provisions, people entitled to credits would be credited with earnings rather than contributions. This amendment takes account of that proposed change. I beg to move.
On Question, amendment agreed to.
moved Amendment No. 55:
Page 22, line 9, at end insert—
("( ) was entitled to national insurance credits because of incapacity for work, unemployment, or approved training; or
- ( ) paid national insurance contributions amounting to less than 52 times the class 1 contribution payable on the lower earnings limit for that tax year, or
- ( ) was, by virtue of training or apprenticeship, paid at a rate which is less than the normal adult wage for that category of employment; or
- ( ) was not resident in the United Kingdom; or
- ( ) was, for any part of the tax year, for any reason, credited with national insurance contributions; or
- ( ) was entitled to Home Responsibility Protection.")
The noble Baroness said: We have had an interesting debate on the issues of the best of 20 years. I now want to move Amendment No. 55. The intention of the amendment is to try to give some cover to people who spend some time out of the workforce through unemployment, or because they are undergoing training or apprenticeship, or for any other reason.
The noble Baroness is due to move this amendment and to speak to Amendments Nos. 56. 57 and 58.Am I correct?
Yes—because I think that they cover much the same kind of ground.The intention of these amendments is to provide some kind of cover and protection to individuals who spend some time out of the workforce through unemployment or because they are undergoing training or something of that kind. That is spelt out in some detail in the amendment. The problem, as has already been highlighted during the previous debate, is that with the disappearance of the provision concerning the best of 20 years there will be many people who will spend some time being unemployed or possibly undergoing training; or they might be disabled. There will be some reason why they are not in the workforce. Because of that it is necessary to provide some kind of cover for them. That is the object of the amendments. I beg to move.
On these Benches we should like to support the noble Baroness on this amendment and the categories which she wishes to exclude. It seems to me particularly important that if one is to abolish the best-of-20-years rule one must take into account those who have very low earnings, or no earnings, or are in other special situations. It seems to me to be entirely inequitable that those years should have to be counted in for the qualifying period. Therefore on those grounds we support the amendment.
These amendments seek to add a multitude of additional categories to those for whom we have said we shall provide special protection of their SERPS rights following the abolition of the 20-best-years rule. I am tempted to say that this amendment, with Amendments Nos. 56 and 57, attempts to re-invent the 20-best-years rule. But I have to say that we are not convinced that a case has been made for extending the protection of SERPS right beyond the groups we have already identified.Clearly there is a case for protecting the position of people who are out of the workforce for long periods of time and for whom the 20-best-year rule was originally intended. Women who give up work to bring up children, the long-term sick and disabled and those caring for them are the obvious examples, and we have said that we shall protect them. However, people covered by the other categories in these amendments are, by and large, out of the workforce, or suffer earnings reductions, for shorter periods when looked at in the context of a whole working lifetime. Amendment No. 57 would extend the special protection specifically to people who have been unemployed and available for employment; the unemployed are also included in Amendment No. 55. Of course we are all concerned about present levels of unemployment. But we must not let our grave concern about unemployment cause us to make hasty judgments about pension rights which will not become payable until well into the next century for most of those concerned. It is perhaps appropriate for me to remind the Committee that the abolition of the 20-best-years rule will not affect people reaching pension age before the end of this century and its effects will build up gradually as the new century progresses. It is our view that it is much better to decide what action, if any, needs to be taken nearer to the end of the century when we shall have the actual unemployment figures for the periods in question, and a much clearer picture of the extent to which people's pensions rights will be affected. Amendment No. 56 seeks to extend the protection, in prescribed circumstances, to people whose surplus earnings factors in a particular year are lower than 75 per cent. of their average earnings factors for the preceding years. We are well aware that there will be cases where, because of, for example, reduced earnings following disablement, or when a mother returns to work on a part-time basis, some people could fare less well in some years, so far as SERPS is concerned, than those people with little or no earnings who qualify for the special protection. It is inevitable that the abolition of the 20-best-years rule will mean some people receiving lower SERPS pensions next century than they would have done if the rule remained in force. Our priority has all along been to protect those people who will be hardest hit—that is, those people who are prevented from working, or have very low earnings, as a result of disability, and those who take time off work to look after their children or a disabled person. It is also inevitable with any concession of this kind that some people will fall the wrong side of the dividing line, wherever that line is drawn. But we have made clear in another place that we are prepared to extend the proposed protection to disabled people who would have qualified for incapacity credits but for the fact that they had earnings just above the annual lower earnings limit for national insurance contributions, and we have also said that we shall consult with the Social Security Advisory Committee and disablement organisations on the detail of the proposed regulations. But at the present time—14 years before the abolition of the 20-best-years rule even begins to take effect—we do not consider that there is a case for going further than that. However, I am sure that it has not escaped the Committee's attention that the proposed new subsection (2B)(a) in Clause 17 contains a very wide regulation-making power which would allow any of the proposed categories of people covered in these amendments to be protected without the need to amend primary legislation. We believe that it is right to deal with any anomalies nearer to the time they are likely to arise. That is why we have deliberately provided such a wide power. It will enable a future administration to add additional categories to those which will be specially protected at any time if they consider that there is a case for doing so. What we have done is to have the courage to state clearly where we think the line should be drawn. Turning to Amendment No. 58, the proposed regulation-making power appears to allow a person's earnings, which would have counted towards SERPS, to be disregarded if that particular year is one which is excluded from the working lifetime over which the person's average earnings are calculated, because it was a year of home responsibilities protection or credits. In cases where there is entitlement to home responsibilities protection or credits there will of course be no surplus earnings factor, because HRP and credits are only awarded when earnings are below the annual lower earnings limit for contributions. The noble Baroness has raised an important point with regard to the position of disabled people with earnings just above the lower earnings limit, in respect of whom we made clear in another place we would extend the special protection by virtue of the power in new subsection (2B)(c) of Clause 17. Once a year has been excluded from a person's working life, he has in effect been compensated for the effects of the abolition of the 20-best-years rule for that year. On the fact of it, it seems right that the surplus earnings factor in that particular year should also be excluded from the average earnings calculation so that the person is not over-compensated. I am grateful to the noble Baroness for drawing this to our attention. We should like to give the matter some further consideration and shall return to it on Report.
I rise to support Amendment No. 55, and I should like to speak particularly to subsection (4), or is it paragraph (d)? I must confess that I find the nakedness of the numerology somewhat disconcerting. I should like to speak particularly in the context of ethnic minorities. Those members of the ethnic minorities who enter the job market last will experience fairly harsh repercussions from the changes proposed in this Bill. In particular of course such people will receive a reduced national insurance retirement pension.Let me briefly explain. In the first place, many such people will often experience long delays before they are accepted in this country, whether they come here as seekers of asylum—that is to say, as refugees—or whether they come here for other reasons; for example, to join spouses or other members of their families. Indeed, it is not uncommon for such people to wait three years or more before they are accepted. I have had Ugandan friends who have had to wait up to four years before their entry has been finalised. Those from the Indian sub-continent in particular are often subject to lengthy delays. Then of course there are those who arrive late in life. They arrive in their thirties or forties and have only 20 or 30 years before their retirement. Not only will such people receive a reduced retirement pension, but their opportunities to earn a second pension to offset the need for related state benefits in retirement may be severely diminished. Already a disproportionate proportion of ethnic pensioners, because of their late start in the British job market, have to claim a supplementary pension. This denies them the chance of earning more than £4 a week, as compared with those pensioners with a full national insurance retirement pension who can earn up to £75 a week with no loss of pension. On these grounds, I strongly support this amendment and commend it to the Committee.
I feel that I must speak to Amendment No. 56. I do not want to be done out of my little speech. I apologise if I repeat what has in some cases already been said; but I should like to make two points. First, I believe that the wording of Amendment No. 56 is perhaps a wiser wording than the noble Baroness's Amendment No. 54. When I was a social work student, more years ago than I care to admit, I found that I had to study economics and social policies; and even as a student I found that social policies and economics cut across one another. I find it so in this Bill. I have hesitated to recommend what I wished because of financial aspects. Throughout the whole of this Bill we have had to strike a balance and look at priorities.The three groups of people who are very much touched by this amendment are the unemployed, women, and the disabled. It is surely right that we should think of them. I should like to take a much wider picture than has been taken before. The unemployed will suffer under the 20-year rule. The women are the ones I am deeply concerned about. I know that I have been pressing women not to go out to work when their children are very young. But it would seem to me—particularly perhaps with fairly professional women—that if they think that this 20-year rule is going to operate they will look for other ways to look after their children. My noble friend Lady Darcy (de Knayth) will speak about the disabled. It is a question of balancing the financial position and the priorities of those vulnerable in our society whom we really care about. I would like to look at a much broader view of the whole of society and what is the cost benefit to society as a whole. We often look at policies in one department and in another department, but we do not look at the policies overall. I suppose that we do not do this because it is very difficult to cost it, and that is partly our problem. I have said in your Lordships' House on several occasions that I wished that there was a central policy unit within our Government which would look at policies right across the board. Therefore, I am in a very great dilemma over this amendment. I believe it to be a good amendment. I believe it would help the unemployed, women and the disabled, however, in society as a whole, taking into account how women must care for children and how greatly the disabled would be helped by the amendment, I recognise that a balance must be struck taking into account the money that we have. I would make one point: ought we not to look more at the here and now instead of looking into the next century? Things can change and we hope that they will change for the better. I beg to move Amendment No. 56.
I too should particularly like to support Amendment No. 56, which is, thankfully, pretty free of complicated-looking mathematics and which would help those disabled people who would not, as the Bill stands, receive protection because they were earning just enough to pay contributions although they were on a low wage. I am a fool about pensions, but I think the noble Baroness, Lady Trumpington, has offered some help for precisely these people; I am not quite certain what, so I shall carry on supporting Amendment No. 56 for the moment. I feel very strongly that we should do everything possible to encourage disabled people to return to work or to enable them to continue working for as long as possible.Members of the Committee have already talked very much about their problems: there is not much left to say, but it seems to me illogical to spend a lot of time, money, energy and expertise in nursing and rehabilitating someone who becomes, for instance, a paraplegic after an accident, and then to make it difficult for him to achieve total rehabilitation by returning to work. He may well be able to support himself and his family eventually, but he will very likely have to work part time at first before returning to fulltime work, or he may have to change his job and take a cut in wages. Also, I think it is true that he will stay fitter and happier and consequently his family will be happier if he remains at work. It is also true that someone with a progressive disease—for example, multiple sclerosis—will remain fitter physically and psychologically if he can continue work within his capacity. This may well be part-time work interspersed with periods of full-time work for as long as he can. As I understand it, as Clause 17 stands at the moment, every year he continues to work on a lower wage could mean a reduction in his pension. Surely he should be encouraged to continue to work for as long as he can. I rather hope the Minister will like this amendment, because I think it is moderate and flexible. It would apply only in prescribed circumstances and I hope the noble Baroness will agree that it not only has value in terms of human happiness but is also sensible when one considers the cost of restoring people to fitness or caring for them when they are ill.
We seem to be dealing with some quite different amendments here, but we are linking together Amendments Nos. 55, 56, 57 and 58. I should like to comment in particular on both Amendments Nos. 55 and 56. I think Amendment No. 55, as worded, is far too wide. I must say that I do not agree at all with the noble Viscount, Lord Buckmaster, about giving credit to people who are not resident in the United Kingdom. To me that is quite unbelievable. I came here from another country fortunately at an age when I was at the beginning of my national health pension time, but I would have found it a remarkably generous country if I had come some 10 years later and I had been given 10 years' credit for the years when I was not resident in the UK. That is the rather unbelievable category that is suggested here.As regards the unemployed, of course, I should like to see a credit given. I see that in Clause 17 it is covered, but we must be very aware that although the great majority of unemployed people are genuinely unemployed a few are voluntarily unemployed, and there would be every incentive to be voluntarily unemployed if you could get full credit for everything while you were unemployed. We would have to be quite sure that those people receiving full credit were those who were genuinely unemployed. Amendment No. 57 would have covered this point. I hope the Government take that into consideration because it is important that the unemployed should have prescribed circumstances and be available for employment. In that sense I support the sentiment of that, but I think the wording of Clause 17 already covers that and allows for the regulations to be so worded as to cover that aspect. Amendment No. 56 has a sound principle in it that I think should be carefully considered by the Government, if not in its presently worded form certainly in principle. It is greatly to the disadavantage of women to lose the 20-year situation. It will not be so good for them to have their pensions worked out on a 30-year basis. But I do not accept for a minute the argument put forward many times that for every working year worked at a lower rate you earn less towards a pension. I do not think that is correct. If it is averaged over the whole of someone's earnings it will still be averaged over 30 years, or whatever years are allowed. I cannot see that earning anything can take someone down instead of up because it must give additional earnings. The only point in dispute could possibly be whether you might be entitled to a year of credit and that year might be higher than a year of low earnings. That point is something that would have to be covered. But if people are saying that a year of low earnings would be worse than nothing, if someone was not entitled to a credit, then that part of the argument would not follow. I feel strongly about the disability argument. It is greatly in the nation's interests and in the interests of individuals to encourage people who have intermittent disability or partial disability to be fully occupied. I know that all sorts of employment laws have been made to help the employment of the disabled, but many of them cannot do a full-time job. That is something that the Government should consider. I hope, too, that in due course they will consider the issue of part-time work, particularly for married women who have been in full-time employment and have given up to look after their children. I understand this clause will give them credit for that period when they are at home. Many do not then wish to go back to full-time employment because they can care better for their family in part-time employment. I hope that the Government will try to think of some way to help women in part-time employment as that would help to compensate for the changeover from 30 years to 20 years. In conclusion, I hope that the Minister will consider these points that have been made and perhaps think of some solution, unless she can assure us that the clause as worded is already wide enough to cover the various concerns that we have all expressed tonight.
If I may I shall briefly ask one question on a subject that has not been mentioned tonight as far as I know, and that is the problem of widows who have worked most of their lives and have then lost their husbands. Often they take quite a long time to readjust to a life where they have to go back to work without the support of the man in their life. I am wondering what view the Government take about this problem vis-à-vis widows.
Perhaps I may try to answer a few of the questions that have come up. May I immediately say to the noble Baroness, Lady Turner, that it was Amendment No. 58 to which I was referring when I said that I was grateful . I thought I had better clear up that point. The noble Viscount, Lord Buckmaster, talked about people arriving in this country late in life. Proposals for SERPS, which were based on earnings-related pensions on the whole working life, bring the arrangements into line with the occupational pensions. We are concerned here with pensions which relate to earnings and we consider that it is right that, apart from the special groups that we propose to protect, such pensions should be based on the earnings of those years of membership of the scheme in just the same way as occupational pensions.A number of noble Lords talked about Amendment No. 56. We could not accept an amendment which tied us to the 75 per cent. as it says in that amendment. The quest for completely even-handed treatment has resulted in an impossibly complicated social security system. If we are to get a reasonably simple and workable system, there are bound to be some rough edges. Some of the losses projected in the press for part-time women workers as a result of our proposals are very exaggerated because they are based on unrealistic earning levels. Over half the part-time women workers earn less than the lower earnings limit. Many of them will qualify for home responsibilities protection and thus protection for their SERPS rights. In another place we have said that we shall protect the position of disabled people whose earnings just exceed the lower earnings limit. We intend to consult fully the Social Security Advisory Committee and disablement organisations, and I should like to suggest that we include in those consultations representations from widows' organisations on the detail of the regulations. The powers in the Bill are wide enough to allow us to deal with problems at the margin like this. We have plenty of time to sort it out. The new SERPS protection will not start to affect people's pensions until 1999 or 2000. The noble Baroness, Lady Darcy (de Knayth), talked about disabled people on low-paid work. Disabled people will be protected automatically if they are incapable of work. We will also protect such disabled people with earnings up to and just over the lower earnings limit. We shall consult fully on our detailed proposals before the relevant regulations are made. The noble Baroness, Lady Faithfull, spoke on Amendment No. 56 and said we should not look at the next century but should consider the position now. I must stress that we are proposing no changes for SERPS until the next century. We have wide regulation-making power which will enable us to cover as necessary any of the categories mentioned in the Committee and no further special protection or provision is necessary. My noble friend Lady Gardner talked about averaging out over the working life. She is right when she says that earnings are averaged over the whole working life in the way she explained. The widows about whom my noble friend Lady Macleod spoke will qualify for national insurance widows' benefit. This includes widows' husbands' SERPS pension. On retirement, the widow will be able to add the inherited SERPS up to a maximum sum to her own SERPS. That is really all I want to say for the moment.
I am rather disappointed, as Members of the Committee may not be surprised to hear, with the response of the noble Baroness. I had hoped that she would have found it possible to have accepted at least one of these amendments. So far as concerns Amendment No. 55, that is a very wide amendment and I take the points that have been made in the debate. I shall not be pressing it this evening. I note that there is to be consultation and some possible steps taken in relation to disabled people. I welcome that, and we shall have to see what those steps turn out to be.However, on the whole matter of the unemployed I do not really accept that it will not affect people for a very long time and therefore we do not have to bother about it. I said earlier when I was talking about the best 20 years that a 20 year-old man in 1988 who is unemployed from 1988 to 1993 will lose five years from the pension he will receive eventually from SERPS. Quite obviously, unemployment is going o affect people's ultimate pension entitlement quite substantially because of the loss of the "best 20 years" rule. Therefore it seems only reasonable that some kind of protection should be given to people in those circumstances. I think on reflection that possibly the best amendment on this score is Amendment No. 57, which talks about people who are unemployed and available for employment. I think that is quite a reasonable point which was made by the noble Baroness, Lady Gardner, and I am disappointed that the noble Baroness, Lady Trumpington, has not found it possible to take that on board. However, when we turn to women and the effect of the loss of the "best 20 years" provision in relation to them, I am interested in what the EOC has to say in its press release, because it seems to me that the position is described with great clarity, in these terms:
The EOC has made a proposition to counteract this effect and it recommends to the Secretary of State:"In practical terms, a woman who does part-time work for a substantial part of her working life will receive a smaller SERPS entitlement than a woman who has chosen to claim home responsibilities protection for a greater number of years but who in the rest of her working life has worked full-time. Because many married women work part-time when their children are young (and many earn enough to pay national insurance contributions) the effect of the new provision will be to gain extra contributions from mothers working part-time whilst reducing their ultimate SERPS entitlement, which is manifestly unfair."
I commend that as a possible solution of the part-time problem to the noble Baroness, Lady Trumpington. In the circumstances and in view of the late hour, I do not intend to press these amendments to a Division although I reserve the right to look again at the situation and possibly bring back something similar on Report. I beg leave to withdraw the amendment."that a further option be introduced into the new SERPS arrangements. In any tax year when a person pays national insurance contributions but, had he or she not earned, would otherwise have qualified for home reponsibilities protection, he or she should have the choice of whether to include that year's earnings for SERPS calculations or to have the earnings disregarded and claim home responsiblities protection".
Amendment, by leave, withdrawn.
had given notice of her intention to move Amendment No. 56:
Page 22, line 12, at end insert—
("or (d) in prescribed circumstances earned so little that his earnings factor for that year was less than 75 per cent. of the annual average of his earnings factors for tax years prior to that year taken into account for the purpose of calculating N.")
The noble Baroness said: I should just like to thank my noble friend the Minister for what she had to say in relation to Amendment No. 56. With the noble Baroness, Lady Turner, I should like to consider this amendment and perhaps return to this point at the Report stage.
[ Amendment No. 56 not moved.]
[ Amendments Nos. 57 and 58 not moved.]
moved Amendment No. 58A:
Page 22, line 16, at end insert—
("(5) For the purpose of determining the additional pension falling to be calculated under section 6 of the Social Security Pensions Act 1975 by virtue of section 7, 13 or 16(4) of that Act in a case where the deceased spouse died under pensionable age, the following definition shall be substituted for the definition of "N" in section 6(2B)—
"N=the number of tax years which begin after 5th April 1978 and end before the date when entitlement to the additional pension commences, except that where—
(a) in a case in which the deceased spouse was a man, that number would be greater than 49; or (b) in a case in which the deceased spouse was a woman, that number would be greater than 44,
N=49 or 44, as the case may be;".
(6) For the purpose of determining the additional pension falling to be calculated under section 6 of that Act by virtue of section 14 of that Act (invalidity pension for persons under pensionable age), the following definition shall be substituted for the definition of "N" in section 6(2B)—
"N=the number of tax years which begin after 6th April 1978 and end before the first day of entitlement to the additional pension in the period of interruption of employment in which that day falls except that where—
(a) in a case in which the person entitled to the pension is a man, that number would be greater than 49; or (b) in a case in which the person so entitled is a woman, that number would be greater than 44,
N=49 or 44, as the case may be;".")
The noble Baroness said: This is a technical amendment. I beg to move.
On Question, amendment agreed to.
had given notice of her intention to move Amendment No. 59:
Page 22, line 16, at end insert—
(" (5) In section 14 of the Social Security Pensions Act 1975 (invalidity benefit and disablement pension) for the words "shall for any period of interruption of employment be" to the end of the section, there shall be substituted "shall for any period of interruption of employment be—
or, if there are more than 20 such surpluses, of those 20 which give the largest weekly equivalent.')
The noble Baroness said: The object of this amendment is to deal with the whole question of invalidity pensions. The effect of the amendment would be to retain the 20 years rule in respect of invalidity pensions paid before pensionable age, although without changing the proposal to reduce the accrual rate from 25 per cent. to 20 per cent.
This came up with Amendment No. 54—
I beg the Committee's pardon. I do not move the amendment.
[ Amendment No. 59 not moved.]
On Question, Whether Clause 17, as amended, shall stand part of the Bill?
I fear that I gave notice that I would move that Clause 17 should not stand part of the Bill, although I hoped that I would not have to do so because we would have had something from the noble Baroness. I know she said that she would look again at Amendment No. 58, but that is not enough. I believe that this is the most important clause in Part I of the Bill. It is absolutely fundamental, because it contains the main changes to SERPS and, therefore, the assumptions on which the Government have embarked upon this project.I want to deal with these in a moment or two, but before doing so I want to say that I am amazed by what seems to be a total change in attitude in 10 years by the very same people. I well remember Mr. Norman Fowler, when he was speaking for the Opposition on health and social security, not just supporting the Bill but arguing exactly the opposite of what the noble Baroness has been arguing; namely, that it was necessary to have a long-term scheme in order that people could plan for the future, in order that we could see. Norman Fowler at that time, and Kenneth Clarke his deputy, then in opposition, shared our hope that by the time the scheme fully matured, and from then on, people would retire on pensions which would keep them above the supplementary benefit level. That was the objective. We were aware and talked of occupational pension schemes, which, after all, are themselves enabling those who are part of them to plan for their own retirement, to know roughly what they will get in 20 years' time. Obviously, that will depend on the inflation rate as well as a number of other factors, but an occupational pension scheme sets out to enable those who are part of it to know what to expect when they retire. It may be true that younger people do not take so much notice of this. I take a great deal of notice of it; in fact, I wrote to the noble Baroness only a day or two ago to ask whether she would have a look at how I was going. I knew where I was going, but I wanted to check what were my entitlements. My entitlements are based on my payments, and that is how it should be. To paraphrase the noble Baroness, she said that it does not really matter that happens 15 years from now, and that is an absolute denial of the position that was being taken 10 years ago—
I think the noble Lord is not quoting me or paraphrasing me at all correctly. I never said that it did not matter. I simply said it was wrong to take judgments so far ahead, when there is plenty of time for those in the future to judge what is needed in that day, just as 10 years later the situation will have changed for those same people about whom we were talking just now, and they will plan accordingly. I really cannot be misquoted like that.
I am most grateful to the noble Baroness for getting up and saying exactly what she said, because that is always far better than any attempt to paraphrase. I disagreed with what she said just as much as I was going to disagree with my paraphrase of what she said. I do not believe that every 10 years we should have a look at our pension scheme and therefore change people's expectations. What matters is not just the SERPS cuts but the total effect of the Government's policies on the future value of the state pension, basic earnings-related, as a proportion of pre-retirement earnings. If earnings rise by an average of 1.5 per cent. per annum, as the Minister suggested was the basis (and we know it is) of the Government's calculation, the effect of tying the basic pension to prices rather than earnings will be even more catastrophic than the actual SERPS cuts, and it will hit all pensioners, not just those retiring after 1999.The figures in the first part of the technical annex to the White Paper Reform of Social Security, together with figures published in reply to parliamentary Questions in another place, show the effects of the Government's policies on men and women with typical patterns of lifetime earnings. The pension expectations of low earners would be cut by about 50 per cent. as a result of this clause and what goes with it; the expectations of high earners would be cut by about 45 per cent. I am not making any great point that high earners get a smaller cut than the rest but nevertheless that is how it works out. For a high earning man the cut is divided equally between the basic pension and the earnings-related pension. But in every other case most of the cut is in the basic pension. I do not know what the Minister will say when she replies—she may not feel it necessary to do so—but she may reply that the basic pension is tied to prices only as a minimum and in practice will go up more or less in line with earnings. That is roughly the line she has been taking. The figures in the technical annex all assume that pensions will rise only in line with prices. The statement in paragraph 2.2 of the White Paper that the earnings-related scheme as it stands would account for more than half the total cost by 2033 is also based on this assumption. So we are right in assuming that it will largely be based on the inflation rate. The Government claim that the cost of SERPS if not reduced will become intolerable in the next century. That is why the change is being made; that is the justification for it. It is expected, and it was expected when the scheme was introduced, that demographic trends would result in a steep rise in the proportion of pensioners in the population from about 2020 onwards. We made this assumption 20 years ago and my noble friend Lady Turner was right when she said that the demographic assessments which were made 10 years ago vary hardly at all from the demographic assessments which are made now. The proportion of pensioners in the population will rise from about 2020 onwards, though the proportion will actually fall again after 2040. What is not generally realised is that a bigger increase in the proportion of pensioners to the population of working age has already occurred since the 1950s than is expected to occur in the next century. We have had the biggest upward swing in the level of the pensioners. Yet over that period pensions have actually risen significantly in real terms. If I were to stand here and say that they had not risen in real terms, the noble Baroness would leap to her feet and say that, certainly in the past seven and a half years or however long it is, they had risen. Today's population has been prepared to ensure a rising pension level for its current pensioners. The Government Actuary's report on the Bill shows in Table 5 what contribution rates would be required in the next century depending on whether SERPS is cut or stays as it is, and whether the basic pension rises in line with prices or earnings. The present 1986–87 contribution rate for contracted-in employees in 17.65 per cent. On the basis of the Government's present plans for cutting SERPS by tying the basic pension to prices, the peak contribution rate in 2033 to 2034 would be about 14.4 per cent. Actually, therefore, there would be a cut in the proportion of contributions. But it is plainly absurd to assume that contributors will not be prepared to accept any increase in contribution rates over that period, especially as the rates are likely to fall again after 2040. I really do not understand why Ministers and those who support them in this Committee and in another place assume that the responsibilities that we are prepared to take today for our pensioners are responsibilities that our children, when they are our age, will not be prepared to accept for their pensioners. I absolutely challenge that pessimistic assumption. I ask myself what is the difference in the calculation between that which was made in 1975, or rather, in preparation for the 1975 Act, and now. It is not the demographic practice at all; it is the Government's confidence in the development of the improvement of the economy. The Government have so little confidence in what the economy is going to do—less than we had 10 years ago—that they are saying, "Ah! We cannot afford this for our senior citizens 20 and 40 years from now". According to the Government Actuary's table, if there were no SERPS cuts but the basic pension rose in line with prices only, the 2033–2034 contribution rate would be 18.5 per cent.—very little more than the present rate. On the basis of the Government's assumption that the basic pension is tied to the price index, the SERPS cuts are therefore clearly unnecessary. It is because we believe that they are absolutely unnecessary that I am making this argument. Only if SERPS in its present form is combined with raising the basic pension in line with earnings does the contribution rate look at all problematic. In fact, one would come in 2033 not to the figure of 18.5 per cent. that I gave earlier but to one of 27.3 per cent. I can understand the Govenment saying, "We need to reduce our commitment", but to reduce their commitment to that extent they are simply saying, "We will do as we are doing now, linking pensions with prices and not with earnings". On the basis of the Government's assumption that the basic pension is tied to the price index, the SERPS cuts are therefore absolutely unnecessary. The figure of 23.7 per cent., as I have said, is nearly 10 per cent. above the present contribution rate. Compared with the increases in contribution rates imposed by the Government in the last few years, even an increase of 10 per cent. over a period of half a century does not seem all that alarming, especially bearing in mind that that level of contribution would be needed, in all probability, for only a few years, because the number of pensioners in the population would then begin to fall. Finally, there is the argument that even if we could afford such a provision, we ought not to pre-empt resources on such a scale 50 years ahead. That is the basis of the argument that has been put forward perhaps particularly effectively by the noble Lord, Lord Vinson. However, as I said at the beginning, that is precisely what occupational pension schemes are all about, and he knows that is what they are all about. That is why when we introduced the new earnings-related pension scheme we had the objective not only of ensuring that everyone would have a decent pension when they retired—two pensions, in fact, in the form of a flat-rate and an earnings-related pension—but also of improving upon the level, standard and provision of occupational pensions. That has been done to an extent, but not to an entirely satisfactory extent. The Government propose to tear up that guarantee, not only in relation to the state scheme but also in respect of private schemes, which they hope will in future be built on the shifting sands of money purchase. I and my colleagues on this side of the Committee will be determined at each stage of this Bill to ensure that nothing is done by the Government's conviction in the value of money purchase arrangements to undermine occupational pension schemes, any more than we want to see SERPS undermined. It is because we do not want to see SERPS undermined that I do not want, any more than do my honourable or noble friends, to see Clause 17 stand part of the Bill.
We have heard a number of speeches here tonight, and earlier on in the evening I have said how much I agree with the ultimate goals of the noble Lord, Lord Ennals; but really his speech just now was a triumph of hope over actuality. Things will not necessarily work out that way. As he rightly says, the only way that higher pensions can be ensured in the future is by having a more prosperous economy. Indeed, he recognises that the Government have raised pensions substantially faster than he might have anticipated 10 years ago, which I think shows that the Government have great confidence in their future policies.But as I tried to point out earlier this evening, there has been a very substantial downside to that achievement, which is that the general level of taxation required in order to pay higher pensions has been kept high; the regressive level of taxation has been harder, and as a result we have exacerbated the poverty trap. The inter-relationship between these two points was well brought out by the noble Baroness, Lady Faithfull. We simply cannot and must not run away from these realities. In retrospect and with the wisdom of hindsight, many of us feel that SERPS was badly conceived. There are many people who work in the pensions field who feel that actually it is a thoroughly inequitable piece of legislation. But we are lumbered with it—and I say "lumbered" because of the complexities that we have been going through tonight to try to make certain that unto those who have work shall be given more, and unto those who have not had work shall be given nothing. Previously we were talking about how to average out the earnings of those who have been unemployed, or those who have been handicapped or disabled, or those who have had to look after parents and work at home, and how those with a chequered pattern of earnings could have their SERPS made up. In reality we are talking about making up 20 per cent. of their average earnings. For the people at the lower end of the wage scale that probably represents a factor of about £3, £4 or £5 a week. We could be much more equitable to all our citizens—including the other half of them who do not and are not entitled to state earnings-related pensions—if we raised the basic old-age pension; but we cannot raise the basic state old-age pension if we give it away by (excessive) provision through SERPS—I put "excessive" in brackets because we should all like to see the maximum provision made for people in retirement. But I am sure that it is right to look after those who have not had the chance to earn and save, and therefore have that additional spending power. We must also keep SERPS and the payments we make to SERPS in balance and in relation to the payments the state feels that it can afford under the basic state old-age pension, which treats all alike, including those who are unfortunate enough not to be able to earn through SERPS. I did not notice this balance appearing in the speeches of the noble Lord, Lord Ennals. I share with him totally the desire to raise the old-age pension; but I wish he would try to view these problems more in the round, looking at what the nation can afford and at the equitable treatment of all its citizens.
I made it clear in our debate on Second Reading of this Bill that in the Liberal Party we had a long record of arguing for a much higher basic pension and that we felt that if we could obtain a much higher basic pension it should be possible to leave earnings-related pensions to the private sector, whether they are occupational or personal pensions.Given that we were to have a state earnings-related scheme, we have not been opposed to the 20 years rule. Clearly it has some merits and they have been demonstrated during our discussions tonight, but we have been concerned about what we have regarded as a bad principle. There have been arguments as to whether or not the nation can afford it. But whether or not we can afford it, it seems to be a bad principle to commit future generations to paying for their pensioners much more than we are prepared to pay for our pensioners today. Because we were concerned about that principle, the Alliance parties were prepared to consider a modification of SERPS if there were to be an increase in the basic pension. But the Government have voted that down tonight. They have voted down a comparatively modest increase in the basic pension over five years. They have even refused the exceptions that we were discussing in the most recent amendments. In those circumstances, we support the proposition that Clause 17 should not stand part of the Bill.
I rise to support the Motion moved by my noble friend Lord Ennals that Clause 17 should not stand part of the Bill. We have had a lot of discussion this evening about SERPS and the best 20 years provision. I repeat that in my view that provision is the very heart of SERPS. For that reason it attracted a lot of support at the time that it was introduced. Like all other Members of the Committee, I have undergone a lot of lobbying on the Bill from various organisations. I do not think that I have received more lobbying on any aspect than on the 20-year rule. Many organisations have written to me, and undoubtedly to others, protesting about the disappearance of that provision if the Bill passes unamended.I respect the arguments of those who say that there ought to be better basic state provision; quite clearly there should be. But, on the other hand, it has been made clear by the noble Baroness in the debate that we are not likely to see a real improvement in the basic state pension. That being the case, I fail to see why we should continue with the scheme to emasculate SERPS. I believe that basically the reason for the Government's insistence on that is that they want to push people in the direction of making private personal pension provision. Even though the noble Baroness was good enough to say earlier this evening that the 2 per cent. incentive was being rethought in relation to occupational pension provision, there is to be no rethinking on SERPS. As I understand it, there will still be an incentive for people to opt out of SERPS. That simply strengthens my view that that is because the Government want to encourage people to take PPPs rather remain with SERPS. Private pensions are by no means the best solution for large numbers of people currently covered by SERPS and relying on the best 20 years provision. Among the organisations that have written to me is the Royal Association for Disability and Rehabilitation (RADAR). It is very concerned about that feature of the Bill, which it says diminishes the role of contributory benefits in favour of private provision. It says that private pensions are unavailable to many disabled people and in general pay very modest benefits to people struck down by illness or disability early in their lives. It continues by saying that the key benefit for people unable to work is being attacked. It says that it is being attacked with the disappearance of the 20-year rule. That is only one section of the population who will be disadvantaged if the 20-year rule disappears. We have discussed the position of the unemployed. The Government have introduced provisions which are not adequate to cover the situation of women who spend some time off out of the workforce caring for children. All those complications would be unnecessary if the Government simply retained the heart of SERPS—the best 20 years provision. For that reason I back the Motion that Clause 17 should not stand part of the Bill.
The so-called 20 best years rule is the single most expensive feature of SERPS. It was originally intended to help women and people with years out of the workforce, but it has turned out to be badly targeted.To return to the statement made by the noble Lord, Lord Ennals, that my right honourable friend the Secretary of State was a party to the Pensions Act 1975 which brought SERPS into existence, I must tell him that we made clear at the time our reservations about pay-as-you-go schemes which were a blank cheque drawn on the future. My right honourable friend warned that the financing of SERPS could become extremely onerous. The latest projects have confirmed how right he was. The main cost of the 20 best years rule comes from topping up good occupational pensions of people in contracted-out schemes. This is because guaranteed minimum pensions are calculated on lifetime's average earnings, and pensioners who have been contracted-out get the difference between their GMP and their SERPS rights paid as a balance of SERPS pension. The abolition of the 20 best years rule will bring the calculation of SERPS into line with the calculation of GMPs in occupational pension schemes. However, there will be special protection for people who take time out of work to bring up children or to look after someone who is disabled, or because they are themselves disabled. Under the special power in Clause 17(3) people who qualify for home responsibilities protection for their basic pension, or who qualify for national insurance contribution credits for incapacity or for invalid care allowance, will be able to have those years excluded from the years over which their average earnings for SERPS will be calculated. We also made clear in another place that we shall protect the position of disabled people who would have qualified for credits but for the fact that their earnings were just above the annual lower earnings limit for contributions. We shall use the additional power in Clause 17(3) to treat them as entitled to credits and thus to the protection of their SERPS rights. Our detailed proposals will be subject to consultation in due course. The second change is that for people retiring next century; SERPS rights will be calculated at 20 per cent. of relevant earnings instead of 25 per cent. However, there will be a generous transitional period over which this change will take place. Everyone retiring this century will have his SERPS rights earned up to 1988 calculated on the 25 per cent. basis. The change to 20 per cent. will be phased in gradually over 10 years from the year 2000, so that it will not fully apply until people reach pension age in 2009. I should remind the Committee that these provisions do not apply to people retiring before the end of this century. They will continue to have their SERPS rights calculated in exactly the same way as now. The effects on people retiring later will be gradual, and they will have plenty of time in which to build up alternative provision if they wish. Our modification to SERPS puts the scheme on a sustainable and affordable footing for next century by cutting down on its more extravagant features. It reduces by half the intolerable burden which would otherwise be passed on to future generations of contributors—a burden which could well turn out to be unbearable and lead to broken faith with the then generation of pensioners. Bringing the future costs of the scheme down to more manageable proportions will also give future governments greater flexibility in deciding the allocation of resources to meet the priorities of the time than they would otherwise have with a large proportion of those resources pre-empted by an unmodified SERPS. The noble Lord, Lord Ennals, quoted the Government Actuary's figures. In 1975, he warned of a sharp increase in the number of pensioners after 2009, but the figures were not given. Some 10 years later we have a much clearer picture of how sharp that increase will be. The latest figures look ahead to 2035 and use revised mortality assumptions. We must face the fact that by 2035 there are expected to be 4 million more pensioners. It is not just a question of whether SERPS can be afforded; at the end of the day, the Government must decide whether it is right to allow the burden of SERPS for future generations to continue to mount and mount and pre-empt future resources. We have no intention of undermining good occupational schemes. We propose to widen the choice and increase occupational cover into areas where at present occupational schemes do not reach. The noble Baroness, Lady Turner, referred to the best-of-20-years rule as the very heart of the SERPS scheme. But it is a very expensive and extremely badly targeted heart of the scheme. Half of its cost ultimately goes on topping up the good occupational pensions of better off people in contracted-out schemes. I can do no better than conclude by quoting the noble Lord, Lord Houghton of Sowerby, who said at Second Reading:
"Taking all the things together they think it is doubtful whether our scheme would be acceptable in its commitments to those who would have to pay for it when the time comes and that we ought to modify it to make it more acceptable in any foreseeable circumstances. That I call prudence and I think it is to be commended".—[Official Report, 2/6/86; col. 643.]
Clause 17, as amended, agreed to.
Clause 18 agreed to.
moved Amendment No. 61:
After Clause 18, insert the following new clause:
( "Entitlement of married women to Category A retirement pensions. 1985 c. 53. 1975 c. 14.
—(1) Subsection (2) of section 11 of the Social Security Act 1985 shall be amended by the substitution of the date 6th April 1979 for the date 22nd December 1984.
(2) In consideration of the additional condition for the entitlement of a married woman to a Category A retirement pension imposed by section 28(2) of the Social Security Act 1975 the second condition shall be deemed to be satisfied for each of the years the contributor concerned was precluded from employment by responsibilities at home.")
The noble Lord said: Earlier today the Minister said that pensions have been too complicated for too long. This is particularly true of the married women's half test under which older married women today are worse treated than the younger. Unfortunately, complicated legislation has put them in a very difficult position. Looking at the history of the treatment of married women under the national insurance Acts, one finds that the 1946 Act dealt with them purely by regulation. Section 59 left to regulation the treatment of married women for insurance purposes. There was nothing in the Act to warn women that they were in danger of losing the benefit of their past contributions unless they re-entered the scheme as voluntary contributors.
When the appointed day came in July 1948 most married women who were insured discontinued their contributions. Under Section 59(2)( b) of the 1946 Act their past contributions could be credited to them for
maternity allowance purposes. There is little evidence that I can find that married women were warned of the danger of not continuing contributions. This is particularly true of many women serving abroad in the services who married during, or at the end of, the war. Governments could be forgiven for not circulating details to troops serving in theatres of war.
The 1975 Act brought into statute law the married women's half test rule. Four years later Parliament passed the 1979 Act which said that for women reaching pension age on 6th April 1979 or after the married women's half test would no longer apply. That was really a recognition by Parliament that the married women's half test was wrong, that there was undue discrimination against married women, and that this should be put right. However, it left out completely the older married women who reached pension age before 6th April 1979. That is why we come to the present new clause in an attempt to put this right.
The following stage was when the European Community issued a directive pointing out that the marrried women's half test of the 1975 Act was unduly discriminatory. Then Parliament in the 1985 Act tried to put this right and made it apply to all women, but backdated it only to 22nd December, 1984. One had the position that women covered by the 1979 Act—the younger married women—received their pension directly when they came of pension age, whereas the older married women, who probably needed it more, received it only from 22nd December, 1984, a difference of five-and-a-half years.
In attempting to try to reduce this anomaly and injustice, the amendment which the noble Lord, Lord Ennals, and I are introducing in subsection (1) is putting the date back from 22nd December, 1984 to the same date as in the 1979 Act—6th April, 1979. That would remove the unequal treatment. One will never correct the basic anomaly in this discriminatory married women's half test. What we can do is to see that married women are treated alike. I think one can do that by this provision.
I put subsection (2) in the amendment because to me there has been very little evidence in the correspondence that I have seen between the ministry and the women affected that this provision has been applied. As I understand the law, it does not appear to apply to the older married women. If my noble friend tells me that it is unnecessary, obviously it could be removed. But I think for the sake of clarity it is wiser to include it.
It is a long-festering injustice and I hope that this amendment may help to remove that injustice and remove some of the indignation felt by some of those married women whom this situation affects. I beg to move.
It would be presumptuous and quite unnecessary for me to add any further argument to the very well argued case put forward by the noble Lord, Lord Tranmire, who himself drafted the amendment. I was impressed by it and put my name to it because I felt that there was a case here to put right an injustice. This was, in my view, typical of the noble Lord, whom I had the privilege of knowing when he was in another place. I say no more than that I totally support every word he said and the amendment that he proposed.
As has been said, the half-test was an additional contribution condition that married women had to satisfy before they could receive a pension on their own contributions. It provided that a pension could be awarded only where a married woman had paid full rate contributions for at least half the years between marriage and the date of retirement.As my noble friend Lord Tranmire has said, this was a complicated provision—as indeed are so many in this field—but the half test was abolished from 6th April, 1979 for women retiring after this date, although it still affects women who retired earlier. Following the implementation of the European Community Directive on equal treatment in 1984—and I must correct my noble friend by saying that the European Community Directive did not refer to the half-test in any way—the Government decided in the light of the Directive that the half-test should be completely abolished. It was found that these residual effects of the half-test could also be held to be discriminatory, and the Government accordingly took steps to remedy the position from 22nd December, 1984, when the Directive came into force. The Committee will remember that we discussed the issue during the passage of the 1985 Social Security Bill. Since then an extensive exercise has been undertaken to identify married women affected by the remains of the half-test, and pension has been awarded to about 20,000 women. However, in many cases it was found that this did not mean any additional payment because most women affected by the test were already receiving a higher amount of pension on their husband's contributions. The amendment seeks to backdate the abolition of the half-test for those who reached age 60 before April 1979. I have to stress that this is not acceptable to the Government for several reasons. First, the administrative effort required to search all records of married women who reached pension age before April 1979 would be considerable, and as I have already noted from the previous 1984 experience in many cases the result would give no additional benefit to the pensioner, because her entitlement on her own contributions was less than the pension she was already receiving on her husband's contributions. Secondly, as my noble friend has said, the half-test was introduced at the outset of the national insurance scheme in 1948 and was accepted by governments of both parties. It was designed to distinguish between those women who chose on marriage to pay the special low-rate married women's contribution while in work and to rely for pension on their husbands, and those women who sought to retain an independent contribution record. I remind the Committee that married women had and have a unique advantage in being able to receive a pension of their own without contributing at all. Indeed, until 1975 men and single women had to pay compulsory contributions even if they did not work. Married women had the privilege of choosing whether or not to pay contributions. A married woman who failed to satisfy the half-test had, by definition, decided deliberately not to maintain a full contribution record. It seems unfair to change, seven years after the event, the conditions of their entitlement to pension, and particularly to award them contribution credits for years at home during which they paid no contributions, as the amendment also seeks to do. But if one is to do it, why choose 1979? The half-test affected women from 1948 onwards; and 1979 is only relevant because it saw the end of the first year of the earnings-related pensions scheme and the abolition of the married women's reduced-rate contribution. Thus it is significant for women retiring into the new scheme and contributing on new conditions, but not for those who retired earlier. Most of the older women to whom my noble friend referred now have high pensions on their husband's insurance. Retrospection is not in general a feature of contributory benefits. Pension and other benefit rights are determined under the legislation in force at the time the benefit is required. Such rights cannot be reassessed at every subsequent change in the law. The point about the abolition of the last effects of the half-test from December 1984 was that from that date European law overrode domestic legislation. It makes no sense, and establishes dangerous precedents, to abolish it from an earlier stage. A further point is that these benefits are awarded for maintenance. It has long been held that even where entitlement existed, if a claim had been made, there is no sound reason to pay benefits long after the period for which they were intended when the claimant clearly has maintained himself or herself without them. Thus there is an absolute rule that benefits are not backdated for more than a year except in cases of official error. This amendment would breach that principle. On the second premise in the amendment, I can assure my noble friend that the present arrangements for home responsibility protection broadly have the effect that this amendment seeks to achieve, but instead of deeming a woman as satisfying the second contribution condition it reduces the number of years for which she needs to pay contributions for a full pension. The provision is therefore unnecessary. For all these reasons the Government cannot accept the amendment. The half test has indeed wholly gone. In the circumstances, I trust that my noble friend will feel able to withdraw his amendment.
In view of what the noble Baroness has said I beg leave to withdraw the amendment, although I am dissatisfied with the decision.
Amendment, by leave, withdrawn.
[ Amendment No. 62 not moved.]
I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House adjourned at one minute past eleven o'clock.