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Pensions

Volume 691: debated on Tuesday 24 April 2007

asked Her Majesty's Government:

In respect of employees with multiple jobs, the earnings from each of which is below the lower earnings limit but from which the total combined pay is above the lower earnings limit, what estimate they have made of (a) the likely gross and net cost in 2025 and 2050, were credits to be made into (i) national insurance for the basic state pension only, and (ii) for the basic state pension and the state second pension; and (b) how many employees would be eligible for such a credit. [HL2921]

Evidence from the Labour Force Survey 2004-06 shows that there are around 15,000 women and around 5,000 men who have two jobs each paying below the lower earnings limit but when aggregated their earnings are at least equal to the lower earnings limit, who do not otherwise qualify for the basic state pension.

These are point-in-time data and people may not remain in this position for lengthy periods and may well have other opportunities to build up qualifying years during their working lives. The reforms proposed in the Pensions Bill, including the reduction in the number of qualifying years to 30 for a basic state pension, mean that people reaching pension age from 2010 will have far greater opportunity to build improved state pension entitlement over their working life.

Table 1 below shows the estimated cost of providing a national insurance credit, from 2010, to people whose earnings would exceed the LEL if aggregated. Estimated numbers of people who would be eligible for such a credit are based on the above figures and take into account, for example, the projected increase in the working age population.

However, such a national insurance credit would not be awarded on any form of self-certification basis without any evidence. All national insurance credits and the proposed new carer's credit are awarded on the basis of evidence. To satisfy the evidence requirement it would fall to employers to collect and aggregate earnings information to provide that evidence base, and we have ruled out aggregating earnings information in this way because of the burdens on business.

If earnings information were to be collected on an aggregate basis by a collective of relevant employers and earnings exceeded the national insurance thresholds then national insurance contributions would be payable. It would be only right and fair to expect individuals and employers to pay national insurance on those earnings where a liability arises. It would be unfair to give people a free pass for pension purposes but exempt them from their national insurance liability.

Table 1

2025

2050

BSP only

Gross cost (£m)

0-5

0-5

Net cost (£m)

0-5

0-5

Number of eligible people

35,000

35,000

BSP and S2P

Gross cost (£m)

20

110

Net cost (£m)

15

80

Number of eligible people

40,000

40,000

Source: DWP estimates based on evidence from the Labour Force Survey 2004-06 and demographic projections.

Notes for tables:

1. Estimated costs are presented in £ million, 2006-07 price terms and include overseas cases.

2. Gross costs refer to the estimated expenditure associated with this credit, in addition to estimated expenditure on reforms to coverage set out in the Pensions Bill. They take into account, for example, the reduction in qualifying years required for a full basic state pension. They do not include other reforms that affect basic state pension, such as earnings uprating.

3. Net costs include savings seen from reduced expenditure on income-related benefits (pension credit, housing benefit and council tax benefit) and from changes to state pension age.

4. Estimates of eligible people show the number of people in the given year who could be awarded the credit.

5. Estimated costs have been rounded, according to the scale of the figure. Figures below £5 million are shown as £0-5 million. Estimated numbers of people eligible have been rounded to the nearest 5,000.

6. Estimated costs relate only to benefit expenditure and do not take account of administration costs.

7. Estimates assume that the earnings of the people concerned rise at the same rate as the lower earnings limit.

8. Estimates are based on survey data and are subject to sampling variability. Information relating to third or fourth jobs is not collected in the Labour Force Survey. Consequently estimates may exclude people whose total earnings from their first and second jobs are below the lower earnings limit, but total earnings including any additional jobs are above the lower earnings limit. Similarly, information in the Labour Force Survey does not permit precise identification of people who are already qualifying for state pension, and so proxies have been used. For example, women with dependant children below 12 years are assumed to be qualifying through contributions credits for those caring for children.