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Pensions Bill

Volume 692: debated on Monday 4 June 2007

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord McKenzie of Luton): My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved accordingly, and, on Question, Motion agreed to.

House in Committee accordingly.

[The LORD SPEAKER in the Chair.]

Clause 1 [Category A and B retirement pensions: single contribution condition]:

1: Clause 1, page 1, line 13, leave out “2010” and insert “2008”

The noble Lord said: Here we are again at the Committee stage of a pensions Bill. I welcome the noble Lord, Lord Skelmersdale, who, with me, was a veteran of the 2004 Bill. I speak as a player in an enthusiastic and talented string quartet that consists of my noble friends Lady Thomas, Lord Kirkwood and Lord Addington.

We on these Benches would have preferred these proceedings to have taken place in Grand Committee. This Bill will raise strong emotions and involve Divisions, but given that much technical work is needed, a Grand Committee would be a better forum for achieving consensus and for probing, particularly due to the way that the committee rooms are laid out. The Committee stage of the previous Pensions Bill was taken off the Floor of the House. It would have been easier to consider this Bill in that way because officials would have been able to be there with the Minister and many issues might have been resolved immediately, rather than going backwards and forwards. The Welfare Reform Bill worked better in that way, although some proposals were contested and major changes were made at Report. In addition, I have a pile of papers that would have been easier to deal with in the Moses Room. Those are serious points regarding the correct way of conducting our business and I hope that in the future we will think long and hard as to whether it is right to consider a Bill in Grand Committee or on the Floor of the House.

Moving on to this important Bill, we start with the issue of reducing from 39 to 30 years the period that people have to work in order to qualify for a full state pension. This is most relevant to women. Helpful background figures from Age Concern show that 17 per cent of single female pensioners live in poverty, that only 24 per cent of newly retired women are entitled to a full basic state pension in their own right and that some 40 per cent of women who are employed part-time say that their employer does not have a pension scheme, compared with 25 per cent of women in full-time employment. I am grateful for the briefing given by the National Pensioners’ Convention, Tony Lyons and Help the Aged, in support of our amendment.

Under the Government’s proposals, there will be an inevitable cliff edge in 2010. As I said at Second Reading, we on these Benches believe that a citizens’ pension should be payable to all, as of right. If that were the case, this sort of problem would not arise, but, meanwhile, we must make the best of the current situation. We invite the Minister to discuss this issue, and although we recognise that it would be very expensive automatically to apply a 30-year rule, rather than a 39-year rule, to everyone now, it would be affordable and sensible to bring forward the cut-off point to 2008. That would save a number of people from that cliff edge. I beg to move.

I speak to my Amendment No. 5. The provision for gender impact assessments under the public duty to promote equality is welcome, and I congratulate the Government and the DWP as first department to make that provision. I also welcome very much recognition of the caring role as counting towards the 30-year qualification but, unless this is made retrospective, there will be stark inequalities between people with identical contribution records. The figures available to me—the noble Lord, Lord Oakeshott, referred to correspondence from Age Concern, Help the Aged and other bodies—suggest that this could be as much as £1,000 a year at current pension rates.

We know that the situation of today’s pensioners remains acute: two-thirds of those in poverty are women; 40 per cent of eligible people are not taking up pension credit; and 47 per cent of people eligible for council tax benefit are not taking it up. Although, overall, the Bill will mean that outcomes between men and women converge, the Pensions Policy Institute, of which I have the privilege to be president, estimates that that will not happen until 2050. By then, the projected number of people of state pension age or older will amount to 25 per cent of the population, as opposed to 19 per cent now.

In Committee in the House of Commons, the Minister said that the cost of making the 30-year requirement retrospective would be extremely expensive. The cost is estimated to be about £1 billion, yet the Government estimate that £4 billion will be saved by ending contracting-out rebates. The estimate of the value of unpaid childcare by grandparents is £220 billion and that of carers is £57 billion. In that context, how can the Minister say that £1 billion to address a significant unfairness is extremely expensive? The Government seem content to exploit the good will of families but are unwilling to give back this relatively small sum.

We know that longer life expectancy, together with changing family structures, relationships and interdependencies, requires greater recognition and greater commitment from the Government. In correspondence that I have received, concern has been raised that the current method of each year deducting home responsibilities protection from a woman’s target working life of 39 years makes a current HRP year mathematically less valuable than a year of home responsibilities payments for women retiring from 6 April 2010 onwards. Something needs to be done and I hope that the Minister will respond favourably.

My amendment in this group is intended to explore the extent of the analysis relating to the decision to improve the coverage of the full state pension. However, before I do that, like the noble Lord, Lord Oakeshott, I want to say a few words. First, as a former micro-member of the usual channels, I am well aware that it is necessary to have a balance between Committee stages taken in the Chamber of your Lordships’ House and those taken off the Floor of the House. The fact that previous pensions, welfare or national statistics Bills have been held in one or the other is of no consequence as regards precedence.

Secondly, as I said at Second Reading, there is a large measure of consensus between us and the Government on the Bill. However, as usual, problems arise due to what is not, rather than what is, in the Bill. Most of the amendments in the Marshalled List for this Committee stage relate to the category of what is not in the Bill.

In speaking to my amendment, I start by making a purely probing comment. The reform in the Bill relating to state pension age has been widely welcomed and we on these Benches fully support it. However, we should take care that the Bill does not promise what cannot be delivered. It is in everyone’s interests, especially those who hope to receive a full state pension, that the extra cost to the taxpayer of reducing the required amount of national insurance contributions is affordable and that phasing in the new requirements is done fairly, smoothly and with the least possible amount of confusion.

As I understand it, the only information in the public domain, as the noble Baroness, Lady Greengross, mentioned, is in the regulatory impact assessment, which explains why the whole package of reforms that the Bill introduces will raise spending on pensions from 5.1 per cent to 7.3 per cent of gross domestic product. As we shall no doubt hear in Committee, that is still considerably less than is spent on state pension provision in other European countries. However, the increase will still have to come from somewhere and it will be necessary either to increase taxes or to reduce public expenditure in other areas. I would be interested to hear from the Minister which route the Government intend to take. If it is the latter, are there any particular savings that they have in mind already? My noble friend, Lord James, spent many months discovering many such savings when he produced his excellent report. However, the Government are hell-bent on increasing expenditure, not least in the areas of health and education, with little obvious benefit.

There are also administration costs. A total of £192 million is expected to be spent on adjusting the pension systems to the new conditions. The Government have an unfortunate record in introducing large scale administrative reform, especially where complex computer systems are involved. The report that this amendment hopes to provide would highlight any unrealistically optimistic predictions and would also be extremely valuable should the estimates not prove to be accurate. Therefore, I look forward to hearing the Minister's response.

I find the suggested timetable of 2008 in the amendment in the name of the noble Lord, Lord Oakeshott, rather optimistic. Although we on these Benches fully support the Government’s intention to reduce the required contributions to 30 years, I do not think it is feasible to introduce such change in so short a time.

I very much welcome the opportunity in Committee to debate the detail of a Bill that has been widely welcomed. I welcome contributions from veterans of past pensions debates and newcomers, such as myself and my noble friend Lady Morgan. We are happy to engage with Members in Grand Committee or on the Floor of the House—whatever the usual channels determine.

Amendments Nos. 1, 5 and 6 all concern the keystone of our state pension reforms: namely, that to qualify for a full basic state pension there will be one single 30-year contribution condition. These amendments raise three important points: first, why the Government have chosen 2010 as the introductory year for the 30-qualifying-year condition; secondly, why we do not propose to apply the change to both existing and future pensioners; and, finally, why we do not intend to phase in this reform.

In responding to these important questions, I begin by saying that Clause 1 addresses the inequality of state pension outcomes for men and women. It will bring forward the improvement in women's outcomes in particular, with almost three quarters of all women reaching pension age in 2010 receiving a full basic state pension.

Moreover, from 2025 the proportion of women reaching state pension age with a full basic state pension will, for the first time, equalise with men at over 90 per cent. Without these reforms only around 75 per cent to 80 per cent of people would be entitled to a full basic state pension by then. It surely must be the case, though, that when changes are made a line has to be drawn somewhere. To bring that line forward from 2010 to 2008, as the noble Lords, Lord Oakeshott and Lord Kirkwood, propose, would substantially increase costs, jeopardising the overall affordability of the reform package. The estimated additional net cost would be around £50 million in 2008 and around £150 million in 2009.

Those additional costs would persist well into the longer term, so it is worth considering the practicalities. It would be impossible to bring these measures forward to 2008 because of the lead time required to make changes to both the pensions' computer system and the NIRS system. The lead time is at least 18 months. The noble Lord, Lord Skelmersdale, chided the Government on their performance on changes to computer systems. Having the proper lead time is the key to this working effectively. That lead time is similar to lead times for changes to systems in the private sector. We cannot undertake detailed design work until we receive Royal Assent, so we look forward to co-operation from Members on all sides of the Committee to get that as soon as we can. So, even putting costs aside, the earliest that the change could realistically be implemented is 2009, and the more complex the change—for example, phasing it in—the more challenging it would be.

As Members of the Committee know well, there has been much debate about the cliff-edge effect of this measure, about which I wish to say a little more. I should begin by saying that bringing forward the introductory year to 2008, as proposed the noble Lord, Lord Oakeshott, would not resolve the cliff-edge effect, but would simply move the line so that it would apply to a different group of people.

In response to the amendment tabled by the noble Lord, Lord Skelmersdale, and the noble Baroness, Lady Noakes, I acknowledge that there is much to be said for phasing in major changes in policy in order to graduate the effect whereby people are treated significantly differently on either side of a seemingly arbitrary line. That is exactly what we would have done, were there not overwhelming reasons for making these changes with full effect from 2010.

It is inescapable that the benefit of this measure is optimised if we introduce it in one hit. We are determined that these measures benefit the maximum number of people. I accept that if we were to smooth the reduction in qualifying years to 30 over a period of a few years, there would be a less stark change in outcomes either side of A-day. However, it would also mean that fewer people would benefit overall and, moreover, the critical cohort of women aged over about 45 today—who we have identified as being in particular need of help—would be most disadvantaged by such a phasing arrangement.

I assure noble Lords that we have explored options for mitigating the cliff edge either side of 6 April 2010, but we have concluded that no option provides an acceptable solution. The options are either unfair in principle or they introduce unwelcome complexity or are simply unaffordable. We believe that there are two realistic ways that this reform could be structured so as to smooth the differences in outcomes.

First, we could introduce the single contribution condition more slowly with a phased transition starting with 38 qualifying years for women and men in 2009 and reducing qualifying years in one-year steps to reach 30 in 2017. This would smooth the introduction of the reform, but would make the gains for women reaching pension age from 2010 to 2016 less generous. As a result, around 65,000 fewer people would miss out on a full basic state pension and some 45,000 of them would be the women for whom the reform is most needed.

Secondly we could make the measures retrospective, as the noble Baroness, Lady Greengross, suggested. I have some sympathy with this view as it seeks to improve the situation of today’s and tomorrow’s pensioners and would create a level playing field for those reaching state pension age either side of 6 April 2010, which is the point at which the single contribution condition in Clause 1 comes into force. On the face of it, the noble Baroness’s amendment could increase the amount of basic state pension paid to some existing pensioners and its effect for those reaching state pension age from 2010 would be similar to that of Clause 1, and would therefore make it unnecessary.

However, I should say to noble Lords that while there is admirable intent behind the idea of retrospection, we should be aware that such an amendment would not be affordable and would not necessarily achieve improved outcomes for all. The cost of introducing the proposals for all pensioners is extremely high: at least £1 billion in 2010. The noble Baroness, Lady Greengross, asked why we do not use the savings from the abolition of DC contracting out to pay for it. Over recent months, we have seen a number of references to the so-called savings from the rebate being used.

I should make it clear up front that the abolition of contracting out for defined contribution schemes will not produce savings as such. While abolishing the DC rebate reduces costs in the short term, of course there is a broadly equivalent increase in future spending on the state second pension.

On retrospection costs, this does not take into account substantial additional expenditure on administration—a matter the noble Lord, Lord Skelmersdale, was interested in—tied to the reassessment of cases. A retrospective approach would require the Pension Service to reassess the pensions of more than 2 million current pensioners in one go. It would do little to improve outcomes for the poorest pensioners, many of whom would be no better off because it would simply displace money they receive through pension credit. Indeed, some could end up worse off because they could lose entitlement to a range of passported benefits, such as housing benefit and council tax benefit.

I am sure noble Lords will agree that this is a huge amount of work, which in many cases would achieve little or no overall gain. I am certain that it would also create confusion and uncertainty among today's pensioners.

I draw attention to the letter that James Purnell, the Minister of State for Pension Reform, published in the other place. That letter is reproduced in the information pack made available to your Lordships. It sets out a number of the phasing options that we have considered but rejected for the reasons I have set out.

To sum up, it is neither affordable nor realistically practicable to bring forward the introduction year for the 30-year single contribution condition to 2008. That also holds true for applying 30 qualifying years for a full basic state pension to all pensioners—today’s and tomorrow’s. And a phasing scenario does not provide an acceptable solution. It does not meet the Government's key tests for reform based on fairness, simplicity and affordability—tests which the noble Lord, Lord Skelmersdale, said he was supportive of. Rather, we believe that 2010 is the most logical time to introduce these changes, not least because that is when the state pension age for women begins to rise. People reaching pensionable age before 2010 will do so in a different scheme where different rules apply. For example, women benefit from a lower state pension age and the age at which people become eligible for pension credit is 60.

I hope this explains why the Government have chosen 2010 as the point to draw the line for the new single contribution condition. I therefore urge the noble Lord to withdraw his amendment.

Before the noble Lord, Lord Oakeshott, and the noble Baroness decide whether to pursue this matter, I very gently invite the Minister to consider the fact that it is inappropriate to use the phrase “A-day” in connection with this Bill. “A-day” has a particular connotation in pensions’ activities, and one in which the Government did not come out covered in glory. Can we please use a different phrase?

I thank the Minister for his reply and those who have spoken with varying degrees of sympathy on our amendment. I am bound to say that the more I listened to the Minister’s reply to the noble Baroness, Lady Greengross, the more sympathetic I became to her amendment and the less persuaded I was by the excuses.

The Minister is rather going in for overkill. If it is not practical because of computer problems—and I hear the noble Lord, Lord Skelmersdale—to do it, that is an end of the matter. The cost issue is neither here nor there if it cannot be done. He cannot have it both ways. He should decide which the answer is.

Both are true. It is not affordable, and, even if it were, it would not be practical to do it at the date the noble Lord suggests. Both are true. There is nothing wrong with that.

As a matter of policy, if the Government are not prepared to spend the money on it they should say so clearly. It is rather academic whether in practice it could be done if you are not prepared to spend the money on it.

I sympathise with the amendment of the noble Lord, Lord Skelmersdale, and if he wishes to press that further in due course we will support him. This highlights the complications that are inevitable when one tries to draw a line that is exceptionally difficult to draw in an increasingly threadbare and broken down contribution system, which is, frankly, well past its sell-by date. Before I withdraw the amendment, will the Minister be a little more specific about the cost? He quoted £150 million in 2008 and £150 million in 2009, and said that that would last well into the longer term. I think that the cost begins to run off fairly quickly through the teens; I wonder whether he could give us a little more information.

From recollection—I will check my notes—I thought that it ran through to something like 2030, but I will come back to the noble Lord on that. It is quite a significant run.

I took quite a lot of encouragement from the Minister, because he responded quite warmly to my suggestions. I simply implore him to look again at the costs involved, before we come back to the matter on Report, to see whether there is anything that he can do. He did speak very encouragingly, and I hope that he will take the message away and reconsider the matter.

2: Clause 1, page 2, line 32, at end insert—

“(5) Should the contributor have reached the state pension age and not made the necessary National Insurance contributions or accrued the necessary credits for entitlement to the full Basic State Pension, the contributor may defer claiming the Basic State Pension and may continue to pay National Insurance contributions until the entitlement to a full Basic State Pension has been accrued.”

The noble Baroness said: Amendment No. 2 would allow people who are still working and have reached the state pension age but have not made enough national insurance contributions or accrued enough credits to entitle them to a full basic state pension to defer claiming the basic state pension and to continue to make NI contributions until entitlement to a full basic state pension has been accrued. At present, a person who is still working and who has reached the state pension age cannot opt to pay NICs in order to increase their state pension. Giving someone who wished to continue to work after reaching the state pension age the entitlement to continue to pay national insurance contributions would mean not only that they would accrue credits towards the basic state pension, but that they would also accrue vital credits for the state second pension, a particularly important entitlement for women.

The Pensions Minister in the other place indicated that bringing in a system such as the one proposed in the amendment would create great complexity both for employers and employees. He also said that the system would inevitably lead to overpaying and the issue of refunds, which has a familiar ring to it. However, would it really be too complex for businesses to cope with? After all, many payroll schemes cope with additional voluntary contributions to private pension schemes. More and more employees want to work beyond state pension age, and to deny them the right to make national insurance contributions in order to build up an entitlement to the full basic state pension and the state second pension does not acknowledge this developing trend in employment. Obviously the reduction in qualifying years for the basic state pension from 39 for women and 44 for men to 30 years for both is extremely welcome; it will certainly increase women’s entitlement to the basic state pension. However, to accrue the Government’s income target of £135 a week, which is a combination of both state pensions, a minimum of 43 years’ national insurance records for the second state pension will still be necessary, which will particularly disadvantage women aged 45 and over, who are less likely to have accrued a significant amount of S2P, or its predecessor SERPS. We on these Benches also fully support Amendment No. 3 in the group, which would build up S2P. I beg to move.

I support Amendment No. 2 and will speak to Amendment No. 3. Both seek to address the problem of people who work beyond state pension age but have incomplete records. Who are those people likely to be? They will obviously be anyone with an incomplete BSP. Currently, only 25 per cent or so of women reach retirement age with a full BSP in their own right, as opposed to drawing on their husband’s contributions. Anyone—man or woman—with an incomplete second state pension would also benefit.

Many women are partnered with men a couple of years older who would expect to continue to work until they are 65. A woman may therefore wish to continue working for a couple more years until they can retire together and therefore may want the opportunity to continue to build her pension. If, under current law, her breaks in record were within the past six years, she could buy added years under voluntary class 3 contributions. If they were, say, 10, 15 or 20 years ago, she could not. In any case, she would not be allowed to buy S2P and as, once even the 30-year rule for BSP is in place, she would still need a minimum of 43 years to get S2P full accrual, she may decide that a payment, for example, of 11 per cent on her earnings above the primary earnings threshold is a prudent investment, not just for her BSP but to get the additional £1.50 a year per year accrual value of S2P.

We say that we want to encourage women to work longer, and the pension age is being raised to 65. We say that we want to encourage women to build pensions of their own and to enjoy S2P as well as BSP, yet we do not allow them to do it. Why on Earth not? I may be quite wrong on this, but I suspect that my noble friend may suggest two arguments. First, he may suggest that by deferring her BSP the added increments a woman gains will outweigh her losses on her incomplete record, but that is to compare oranges with apples. Why should the one be offset against the other? Why should she not both build a full pension and enjoy the increments if she defers?

My noble friend may also suggest—certainly, it was an argument in the other place—that this provision would make a woman a less attractive employment option for employers, so it is kinder not to allow her this choice. Of course, it would be permissive and it is a judgment that she, rather than the state, could and should make for herself. In any case, why should employers get a woman’s labour on the cheap? Why should they save on their national insurance bill, which they would have to pay for anyone else, at the cost of a woman building a more adequate retirement income? Once pension age has been equalised, employers would have no such choice for those years between 60 and 65. They would have to pay the rate, including national insurance, for the job.

I point out to my noble friend that the current system is, again, to some degree, unfair to women. A man may retire at 60, play golf and be given freebies—over and beyond any golf cups or caps—of auto credits. We, the state, give a man free contributions towards BSP between the ages of 60 to 65 on his state pension, while he plays golf. However, a woman admittedly can draw her pension from 60 years old, but she is not allowed to pay for contributions of her own even though her financial need may be far greater than a man’s. If we support the principle of extended working lives; if we support the principle of no discrimination against older women; if we support the principle of encouraging people, especially the low paid, to build their own pensions; and if we support the principle of encouraging people to avoid needing to turn to means-tested benefits in later age, I hope the Government and the Committee will support an amendment like this.

I support these amendments and wish to draw attention to the briefing that I have received from the Equal Opportunities Commission. It points out that greater support for the over-45s is needed because many are still at risk of not getting even a full BSP in their own right. It points out that women’s entitlement to BSP would be increased dramatically by the Bill’s proposal to reduce the number of qualifying years from 39 to 30. Nevertheless, there will still remain women in the older age groups who will miss out on getting a full BSP. The EOC advocates, therefore, greater flexibility, as envisaged in this amendment, to enable women to buy into a full BSP by allowing them to make extra contributions if they are able to do so once they have reached what, perhaps, would be normal retirement age. By paying the extra money, they will eventually qualify for a larger pension. This is worthy of support and I hope that the Government will feel likewise.

I have some sympathy with the amendments in this group, but many of the arguments of the noble Baroness, Lady Hollis, apply to the next amendment, so I was surprised to see that all the amendments had not been grouped together. Be that as it may, I have some sympathy with the proposal. The Government are rightly trying to encourage people to take more control over their pension pots by introducing measures such as a reduction in the number of years that NICs must be paid and the extension of contribution credits to make it considerably easier for people to work towards a full state pension before retirement age. As has been pointed out by the noble Lord and the noble Baronesses, these amendments go further than the Bill currently allows.

My concerns rest largely on questions of both cost and feasibility. Allowing people over the state pension age to continue to top up their pension pots would be a considerable spending commitment because what comes in and what goes out are of a vastly different magnitude. Members on these Benches cannot support the amendments because there simply has not been enough research or analysis on the costs and benefits of these suggestions. Were there to be, I might well take a different line. It would be irresponsible to put into this Bill a policy which has not been fully thought through. However, I hope that the Government will look seriously at these amendments and devote some time to fully costing them, then weighing those costs against the benefits that would come from encouraging older workers to stay in work, a matter on which I shall dwell shortly. Until then, I cannot support these amendments.

Perhaps I may help the noble Lord. I presume that he supports raising the basic state pension retirement age to 65; therefore, if a woman stays in work between 60 and 65 she will be paying NICs at 11 per cent a year together with the employer’s contribution above the primary earning threshold. All Amendment No. 3 suggests is that she should be able to do that if she is in work between the ages of 60 and 65, even though she is not drawing her basic state pension. I do not see the cost issue here. That is exactly where the policies of all parties are going; that is, to draw a pension at the age of 65 and, as a result, to pay in NICs for an additional five years to fund both the BSP and the S2P. I accept that there is a phasing issue, but I do not understand the noble Lord’s point about costs.

The difference is that the first has been costed and the second—so far as I know, but I am sure the Minister is about to tell us—has not.

This group of amendments concerns the payment of extra national insurance contributions after state pension age as a means of boosting state pension entitlements where necessary. I thank the noble Baroness, Lady Thomas of Winchester, and my noble friend Lady Hollis for raising this important issue. I shall deal first with the amendment of the noble Baroness, Lady Thomas.

The raison d’être for our reforms to the basic state pension is to maximise the number of people who retire on a full pension. The amendment is therefore entirely compatible with the intention behind Clause 1. However, no doubt the noble Baroness has sensed that there is a “but” in my response, and indeed here it is: it is simply unavoidable that a small minority of people will reach state pension age without the requisite 30 years of contributions or credits for a full basic state pension. We know that in 2010 around 75 per cent of women and more than 95 per cent of men will retire with a full basic state pension, and by 2025 the proportion retiring with a full pension will increase to more than 90 per cent for both men and women. Therefore we must consider very carefully whether any remedy is proportionate to the problem it is seeking to alleviate.

The Government are of the view that the amendment is not proportionate because of the potential difficulties it would cause to employers, particularly small employers. Currently, employers operate on the simple rule that they do not deduct national insurance contributions from any of their employees who have reached state pension age. Therefore, let us consider the detail of the amendment. It would allow anyone who reaches pension age without the requisite 30 years for full basic state pension entitlement to continue paying contributions provided he or she does not start to draw his or her pension.

So what would this mean from the employer’s perspective? It is, quite simply, a recipe for confusion. It brings into the whole tax and national insurance contributions equation the concept of voluntary deductions. This would be complicated enough if the option were available to all people working past state pension age; worse if it were to be restricted to the small minority—around 10 per cent by 2025—of individuals who would not have otherwise accrued full basic state pension rights; and far worse if the period for which the option was available were to vary from individual to individual.

This is the reality of what the noble Baroness is proposing. For each employee over pension age, the employer would need to know whether they were eligible to pay contributions; if so, whether they wanted to pay contributions; if so, whether they wanted to do so for all of the tax years for which they were eligible to pay, or for only one of them, or for some of them; and, indeed, whether they wanted to pay throughout a tax year or only sufficient within a tax year to gain enough credit.

As the amount payable by way of contributions would depend on the individual’s earnings, the “to pay or not to pay” decision may not be as straightforward as it might appear at first glance. For a person earning, say, £120 a week, the amount payable by way of contributions for a full tax year would currently be around £115, but for a person earning around £35,000 a year, it would be around £3,250. So around £3 a week for life for £115 would, I am sure, generally be an attractive proposition; putting the price tag up to £3,250 would make it far less so.

The complexities inherent in the amendment, particularly for employers, make it simply unworkable, in our view. I hope that I have explained the reasons why we do not agree with the intention or the substance behind the amendment.

The amendment of my noble friend Lady Hollis occupies much the same territory as the amendment of the noble Baroness, Lady Thomas, although there are two essential differences. First, it restricts the right to pay contributions to people who work past state pension age; but, secondly, this right would not be restricted to those who defer their state pension. I have already explained the potential difficulties for employers raised by the first of these differences and I do not intend to labour the point.

I would like to make some observations on the second difference; namely, that under the terms of the amendment people would be able to pay contributions and draw their state pension simultaneously. The reason people would be paying the contributions would be to increase their state pension. This raises an interesting question about the point at which the increased entitlement would crystallise. There could be, I suggest, three options. The first is at the point the person has paid sufficient contributions to make that tax year a “qualifying year”, which would be when they had paid contributions on earnings of around £4,500. However, when this occurs depends on how much the individual earns. The second is at the end of the tax year in respect of which contributions have been paid. The third is only at the point the person stops paying national insurance contributions.

The first option would entail the employer or the employee keeping a cumulative total of the earnings on which contributions have been paid and notifying the Pension Service at the point a qualifying year had been achieved. The second option seems more practicable. However, there is inevitably a time lag between the end of the tax year and the contributions being posted to the person’s national insurance account. The only way of avoiding delays in getting the enhanced pension into payment would be for the employer to send details of the earnings directly to the Pension Service. This would be in addition to the normal end-of-year return to HMRC. The third option would avoid annual recalculations of the individual’s pension entitlement, but does not seem particularly equitable.

I am not saying that it is impossible to sort out these practical difficulties, but they are potential problems. I come back to the point I made in response to the amendment of the noble Baroness, Lady Thomas, about whether the solution is proportionate to the problems. My contention is that in the case of the amendment it simply is not.

Perhaps I may pick up on a couple of points. My noble friend Lady Hollis referred to auto credits—the freebie for the golf course. These, of course, will be phased out for men from 2010 in line with the rise in the women’s pension age. It is a transitional issue and will disappear. As regards whether employers are getting people on the cheap, employers continue to pay national insurance contributions where an employee is over pension age. The exemption applies only to the employee’s share of national insurance contributions.

There are one or two other points we ought perhaps to reflect upon if we are going to complete the intellectual analysis. It is suggested that the contributions should generate entitlement to both the basic pension and the state second pension. Would it therefore be equitable to restrict the option to pay national insurance contributions to those who do not qualify for a full basic pension? I suspect the answer is no, given those people who, prior to the introduction of S2P in 2002, were out of the labour market because of caring responsibilities or were low earners who will have accrued little or nothing under SERPS. If that were the case, however, should the option be available to everyone working past pension age, or only to those whose SERPS and/or S2P accruals are below de minimis? If so, how would those be aligned?

If people in work were to have the option to pay contributions past pension age, would it be equitable to exclude those who do not work but carry on their caring responsibilities after pension age from accruing further pension entitlement? We would be changing a fundamental part of the Bill. Again, the answer is no, on the basis that the individual concerned could reasonably argue that, were it not for their role as a carer, they would continue in work. That raises a supplementary question, though: up to what age is that a reasonable premise? Would it be 70, 75 or 80? I do not wish to labour the point, but we need to be mindful that, although on the face of it this may seem a pretty straightforward and reasonable proposition, it would in reality require significant re-engineering of quite a few parts of the state pension machinery. For those reasons, the Government do not support it.

I thank the Minister for that reply, and others who have spoken in this short debate. It should be pointed out that the amendment is supported by the Equal Opportunities Commission, Help the Aged, Age Concern and many other groups. The suggestion from the noble Lord, Lord Skelmersdale, that research should be done on this issue is a good one. Does the Minister agree that some research by his department would be a good idea, as this measure would stop so many women being condemned to a life of means-testing in retirement?

Of course the department will keep all these matters under review, but the key purpose of the Bill is to prevent what the noble Baroness has just asserted the position to be. It is particularly to address equity for women and to ensure that they have fewer years through which they can acquire a full basic state pension and all the extra credits that come from being in receipt of child benefit or other caring responsibilities, which we are going to discuss shortly.

On Amendment No. 3, my noble friend made a fair point that I need to reflect on about carers and the read-across to those who are not in work. There remains a basic problem, however. He and I have friends in common, not far from this Chamber, who have incomplete records, are working past 60 and would like to pay their way and build up a complete record, but are not allowed to do so. That is the simple issue, and it seems unreasonable if we are trying to encourage people to have extended working lives.

I am afraid that I do not really understand my noble friend’s point about complexity for employers. If someone is working for an employer at 59 and continues at 60 or 61, the employer carries on doing exactly what he is doing and no change will occur.

That is not necessarily the case; it is only if the individual wishes to continue to contribute. That raises the questions of whether they wish to contribute for every tax year for which they remain in employment and whether they wish to contribute for the complete tax year, which depends on the level of their earnings. There is a series of quite complicated issues and records that employers would have to keep, which they do not have to keep at the moment.

I suspect that in that case, if we are assuming a retirement age of 60, a deficiency notice would be sent out by NIRS2—assuming that the computer system was working properly—to a person of 59, telling them what their shortfall was. On that basis, the employee would be able to make an informed decision about whether they wished, needed to or would continue to pay NICs. I can see no practical problems associated with it if one has the wish to do so. Deficiency notices are sent out now; such a notice would be the basis of employees deciding whether to continue to pay NICs. If they felt they should do so, they could; if they felt it was not necessary, they need not. Either way, the employer is unaffected.

As far as I understand it, there is no administrative roadblock to having such a provision. I accept that there is an issue about read-across to carers who are not in the labour market so do not have an employer matching contributions. But for the person in the labour market, whom the amendment seeks to address, I see no such problem.

As for the phrase “while entitled” in Amendment No. 3, it was chosen to suggest that there was an entitlement, as opposed to an act of drawing the basic state pension. That is because the age at which women draw the basic state pension will change over time. I did not try to pin that down in the amendment. It is simply a statement of eligibility; while a woman—or a man, come to that—might be eligible for a basic state pension, they could choose not to draw it because they are in work. They would therefore voluntarily pay a full, proper, costed stamp—which, for the rest of us, is assumed to pay our way for S2P—and, as a result, build up a decent enough record which, according to the Government’s regulatory impact assessment and the subsequent figures produced by the Minister for Pensions, would float them off means-tested benefits in the future. If we do not do things like this, some people—maybe not very many—will need means-tested benefits further down the line because they were denied a responsibility they were willing to shoulder of building up a pension in their own right.

Obviously I shall withdraw the amendment at this stage; I shall reflect on the read-across to carers, but I do not really believe that my noble friend has challenged the core assumption that we are talking about somebody in work seeking to continue to build on their pension while not drawing their current pension. That case remains valid, but for the moment, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 3 not moved.]

4: Clause 1, page 2, line 32, at end insert—

“(5) The contributor may make voluntary contributions at any time before drawing a Category A or Category B retirement pension and for any period of their working life up to a total of 9 years.”

The noble Baroness said: Amendment No. 4 would allow someone to acquire nine additional years under class 3 contributions. We have a contributory system; I do not want to make a Second Reading speech about keeping people out, but, by reducing to 30 the contributory years for BSP, extending carers’ credit and lengthening the working life so that those contributions are more easily acquired for those over 65, the Bill will help to extend the reach and coverage of contributions. I know that everyone in this House is delighted about that.

However, the Bill leaves us with two broad problems, both of which have been touched on. The first is the cliff edge. A woman who retires in February 2010 needs 39 years’ contributions. If she retires in May 2010, she needs 30. A month, a week—even a day—will cost the unlucky lady nine/thirty-ninths’ worth of her basic state pension for the rest of her life. It is even possible, to use a slightly exaggerated example, to have twins born either side of that hour by 10 minutes; one would get the basic state pension after 30 years, while it would take 39 years for the other to do so.

I accept the arguments my noble friend made earlier about transitional arrangements being awkward and complex. That is a valid administrative point. I also accept the point he made to the noble Lord, Lord Skelmersdale, that phasing in the changes means delay. Therefore, the Government’s willingness to go for 30 years at 2010 seems decent and humane. I also understand why the Government felt unable to make such changes retrospective—the complexity of record-keeping is considerable. But such an abrupt cliff edge will none the less be perceived as deeply unfair, even more than the reduced married women’s stamp which has for many years been regarded as unfair to women. That problem is there, and the ability to purchase nine years would allow someone, if they chose, to avoid that cliff edge. They could make good the shortfall between 30 and 39 by purchasing another nine years. The amendment would address the cliff-edge problem responsibly, but I accept the Minister’s arguments about the more technical difficulties of approaching it in another way.

Admirable though the Bill is in its inclusiveness, excluded groups will remain, even under the more generous provision. As the Government admit on their most optimistic figures, between 5 and 10 per cent of people will be without a full BSP some 20 years down the line. Five to 10 per cent of 11 million people is really quite a lot.

Let us think of today’s amendments. The previous amendment would have allowed people who have passed retirement age but who are still in work to continue to pay national insurance contributions. The amendment to which I shall speak subsequently would bring grandparents who are effectively full-time carers into the system. Amendment No. 31, to which the noble Lord, Lord Oakeshott, and the noble Baroness, Lady Thomas, will speak, would allow people to run multiple jobs below the lower earnings limit. All those amendments are necessary because the contributory principle cannot cover everyone. If it did, it would be a citizen’s pension.

What do we do when we have pockets of excluded groups? My preference is built into Amendment No. 33, which would scrap the outdated and unfair principle of a contributory system and, instead, build an inclusive, residency-based pension. We will argue that in due course. A second option is to go down the track of seeking individually tailored changes for a series of excluded groups—a particular change for those with several jobs below the LEL, a particular change perhaps for grandparents and a particular change for those seeking to work past retirement age. However, I accept that that brings more tweaking, more complexity and more difficulty to the system.

However, there is a third way, which is what this amendment proposes; that is, a flexible, generic response, allowing people—they will mainly be women—to make good the shortfall by buying up to nine additional years. As I have said, nine years will address the cliff-edge effect fairly; it will make good in full or in part, depending on how many years the person concerned has already accrued, those years during which they made a socially valid contribution to society but which are not tracked for NI purposes. My noble friend the Minister offered two responses to the cliff-edge problem; I am offering a third way.

Such an approach has five advantages. I have mentioned two of them: it addresses the cliff-edge problem and it would help to include those groups—10,000 people here, 20,000 people there—who will remain excluded even under the far greater generosity of this system. In addition, there are three other advantages in being able to buy nine extra years. The first is that it is eminently workable. The principle of buying added years is already well established. For example, if a student wishes to buy three added years within six years of their missing a year, they can do it now. If one is temporarily working abroad, one can buy missing years. I do not think that I am divulging any secrets when I say that both my noble friend and I have had family circumstances in which we have considered this path. In other words, the path of buying additional years within six years is already available for those who know about it—the well-educated, those who think that they can afford it and the relatively well-heeled.

In 2004, which is the latest year for which statistics seem to be available, some 250,000 people bought additional years, of whom 144,000 were women and 107,000 were men, mostly in their fifties, paying some £161 million to the Exchequer for the rights. The practice of departing from the within-six-years rule, which is what the amendment seeks by allowing one to buy nine years for any missing years and not merely those six years, has already been established by government. Due to the failure of the NIRS computer to send out deficiency notices telling people of their shortfalls between 1997 and 2001, the Government have allowed people to make good that deficiency right up to 2009-10, which is another 12 years. When it suits government, we do not have to be constrained by within-six-years; we can have 12 years, because the computer has fumbled. That was a decent, sensible and proper response, and it shows that principle is eminently workable. We already allow people to purchase extra years and nudge them with deficiency notices. If appropriate, we extend those extra six years to 12.

This amendment would add the flexibility that those extra nine years could be purchased at any time and not within the usual six-to-twelve year framework. Many women with jigsaw lives, entering or leaving full-time, part-time or temporary work, caring for children, partners or elderly family members, are unable to predict from one year to the next what the picture on the jigsaw box will eventually look like and whether any pieces will be missing. They may have missing years scattered across a full lifetime. At the moment, only if those missing years were within the last six years can they make that good. Some will know, but many will not know, whether they have the full complement of the NI years—30—until the month when they come to retire, and whether they have a full record and what, if any, years as a result they may want to buy.

The amendment would give us additional flexibility but it would also mean that if people—mainly women—know that they can make good such a deficiency and buy a full basic state pension, it takes some of the risk out of saving. A second small pension becomes worth having because, with a full BSP, they will not face a pound-for-pound, 100 per cent deduction with regard to the pension credit guarantee, for example. It will help to establish a secure platform for their savings because there will be a predictable floor in the BSP, therefore encouraging more women to save and, I hope, abating some of their poverty in older age.

What are the costs? We are not talking about a freebie here but a gentle extension of current rules on buying additional years. To buy a class 3 voluntary contribution, which buys only BSP—it does not buy S2P or IP or anything like that—costs on average about £350 or £3,000 to buy nine years’ worth. If purchased at 60 with average life expectancy, it is obviously extremely good value. If, as is quite possible, the woman has insufficient savings—and one might then look to Saga or Help the Aged in this regard—a commercial loan could be arranged. At 7 per cent paid over five years, it would cost her £14 per week to pay off the loan, to receive a pension even then worth some £20 a week and, five years on, she would receive the full pension of an additional £20 a week, which those extra nine years would have bought. Even if she had to go down the route of taking out a commercial loan, it would still be worth it each and every year—particularly after five years of the loan being repaid. After 2010 a purchase of up to nine years on the 30 would produce even more attractive returns.

How many people might we help? Of women reaching state retirement age in 2004, only 10 per cent had 39 or more years of national insurance. A further 25 per cent had a shortfall of up to nine years—so this amendment would fully cover them—and a further 20 per cent had 25 to 30 years’ worth of contributions. Again, that is a valuable if not complete addition to a full BSP. Below that, if they were married, it would probably not sufficiently improve their position over the dependent wife’s pension.

On the cost to the Treasury, the figures are imprecise. I got some figures this morning from the department. There will possibly be a modest profit in the early years to the department when contributions are being collected and a modest cost in later years when payments are being made, dependent on life expectancy. Given that already we sell 250,000 people years now, mostly to the better educated or the better off, I very much hope that poorer women with untidier lives and at greater risk should have a similar protection. If money is the argument against making the amendment, that could be rectified almost certainly by a modest increase in the cost of class 3 contributions, so it is more financially viable—and I shall try to do the sums. The principle is that if the Government and the House if necessary supported an amendment such as this, it would overcome the problem of the cliff edge and the problem that we identify today in a series of ad hoc amendments about excluded groups. If we are to build on a precedent that we already have and extend it to those most in need, poorer women with inadequate records need a sure base if they continue to save.

I hope that my noble friend will feel sympathetic to the amendment, which fits the spirit of the Government’s White Paper and seeks to ensure that even more people, especially women, come within its reach. I beg to move.

We strongly support this amendment, which, as the noble Baroness, Lady Hollis, said, allows greater flexibility over voluntary backdated NICs to allow workers to fill in gaps in their NI record for any period of their working life up to a total of nine years instead of the much more limited current arrangement whereby some contribution arrears can be paid within six years. This will be a simple but very important reform which could be brought in before the 2010 reforms to allow women not gaining from the reduction to 30 qualifying years to increase their entitlement to both pensions.

We have to face it: those at the beginning or even in the middle of their working lives simply do not look forward clearly to their retirement years. When and if they do review their pension entitlement, they may find that they have a gap of several years but are too late to buy added years within the current rules. This is a much more modest amendment than the previous one. For that very reason, I hope that the Government will be able to accept it.

I support the amendment. I have listened with considerable interest to all the reasons why some of the previous amendments might not be wholly acceptable, but this amendment seems to contain some flexibility and some choice. As we heard, it is strongly supported by the Equal Opportunities Commission and other organisations. The fact that it could be brought in before 2010 is crucially important. I, too, hope very much that the Government will show some flexibility and accept the amendment.

I add my support to the amendment. As the noble Baroness, Lady Hollis, made clear in introducing it, the amendment would rectify the situation of many women, many of whom—as people like me, with my experience, know very well—would be very happy to pay for those extra years. They resent the fact that they were not given advice which would have made it possible to do this at an earlier stage so that they could have the full entitlement. Many of the organisations which have been briefing us support a provision enabling these women to buy those added years in a fairly simple and straightforward way. With such support for the amendment, the Committee should also support it. I wholly recommend it, and I hope that the Minister will consider supporting it.

I am afraid that I am not persuaded by the eloquence of the noble Baroness, Lady Hollis. I noted first, as I suspect that she and I will have arguments about costs throughout the proceedings on the Bill, that she described the figures she received from the department this morning as “modest”. I do not have the advantage of seeing those figures—though I am sure the Minister will be able to reveal them in due course—but I wonder just how modest is “modest”.

Secondly, the noble Baroness said that even between 5 and 10 per cent of those retiring under the 30-year rule would not have a full contribution record. Some of that 5 to 10 per cent—in other words, about 1 million people—would have the opportunity of using the current system of paying the past six years of NICs. Therefore, you cannot count the entire 1 million or so people to whom the noble Baroness referred. I hope the Minister will be able to cover that in his response.

As I say, although I tabled the Question several weeks ago, I picked up the Answer only today, so I have not had time to digest and fully work through the department’s figures. However, they suggest that, depending on the assumptions, there would be a diminishing profit to the Treasury for about three years and an increasing cost thereafter. The figures were for only 2007 to 2009 and covered six years rather than nine. They could not, for example, take account of the problem of those who might not wish to buy those years, calculate what implications and interaction there would be for those who are married or calculate the implication of the de minimis rule. That is why the figures cannot, by definition, be robust, and I do not blame the department for that at all. I did not give precise figures because there are too many conditionalities attached to them to be able to calculate them. However, I can give figures for the individual. I emphasise that until now the Treasury has found it absolutely fine to have this provision for about 250,000 people a year who know how to make good their defaults in the system. As we do not know how many women who are not doing so will take advantage of that—the department, perfectly legitimately, cannot tell us—we cannot give precise costs. All we can suggest is that there will be a modest profit to start with and a modest loss thereafter. However, it is certainly affordable for the individual woman—or man come to that—and, as I say, already exists for the rest of us.

I have listened to the debate and—I had better say this cautiously—found myself very much persuaded by what the noble Baroness, Lady Hollis, said. There is a slight, very unusual, division between myself and my noble friend, but certainly not on a grammar school scale at this stage.

Buying back is an extremely good idea which should be encouraged. I am not sure that it adds to the noble Baroness’s advocacy of the citizen’s pension because I do not think that it fits in with that. However, if we continue with the contributory principle, it would certainly fit in. We do not have an insurance principle; we have a contributory principle. As I understand the Government’s policy, we shall continue with the contributory principle. Therefore, one wants to make that contributory principle and its practice as flexible as one conceivably can. It is common sense to follow what the noble Baroness, Lady Hollis, suggested.

I should point out that buying back takes place elsewhere in the public sector in the occupational area. For example, Members of Parliament are allowed to buy back although none of us former Members, myself included, can remember how many years we can go back. However, I think you will find that it is a little more than the six years that the Government specify.

I have not yet heard a good reason why this amendment should be rejected but I have heard very good reasons why we should accept it. It would certainly benefit women to a very large extent. It may not be correctly drafted but I hope that the Government will at least accept the principle of it.

My name is added to the amendment. I can think of no reason why I should not have added my name to it because it does not introduce any new principle. It would enable what I think we are all trying to move towards; namely, independence for women in retirement. If they have the funds later in life to buy back these years under the principle which has been established elsewhere and, indeed, in the state system, I cannot see any reason why that cannot be considered. I find it difficult to understand the argument that it is not affordable. We do not even have the full figures in front of us. I do not see any objection to the measure in principle and I am unconvinced that there is any financial objection. I am certainly convinced that it would help women to be independent in retirement, which I hope this Bill is striving for; in fact, I am sure that it is.

I thank my noble friend for raising this important issue and for the debate that has taken place. She touches again on the cliff edge, which we debated earlier. We acknowledged that if these matters could be phased in gently and still enhance the position of many women, that would be worth doing. The cliff edge arises because we have determined to introduce the measure in 2010 because that is the way to maximise the benefit, particularly for women.

The group of amendments that we just debated concerned the payment of national insurance contributions after pension age. This amendment seeks to give greater flexibility over the payment of voluntary contributions to fill gaps in the working life when the contributor was not working for whatever reason. It would, in effect, remove the current time limit for paying voluntary contributions and allow people to wait until the very last minute—just before claiming their state pension—to make up missing years. That has the support of the EOC, and it would especially help women to achieve a full pension. However, the amendment would only benefit people reaching state pension age after 5 April 2010. It would not therefore help those who do not benefit from the provisions in this Bill. I do not believe that was intended, but that is the effect of the amendment.

Time limits for payment of voluntary contributions are dealt with by regulations made under Section 13 of the Social Security Contributions and Benefits Act 1992, and noble Lords may be aware that the responsibility rests with HM Treasury. By way of background, the existing rules for paying voluntary contributions allow contributors up to six years to pay the voluntary contributions due in a particular tax year, although in certain circumstances the time limit can be extended. The time limits were extended from two years to six years for tax years from 1982-83 onwards.

As my noble friend identified, there are extended time limits for the 1996-97 to 2001-02 years. Contributors have until 5 April 2009, or 5 April 2010 if they reached pension age before 24 October 2004, to pay voluntary contributions for those years. That extension was introduced because from the 1996-97 year the then Contributions Agency suspended its annual deficiency notices exercise. That exercise is used to notify contributors that a tax year is not a qualifying year for benefit purposes and to give them the opportunity to pay voluntary contributions. When it was reinstated, the time limits were extended to allow contributors at least the amount of time to pay that they would have had if the notices had been issued at the correct time.

The current rules are already widely drawn and allow those over state pension age to pay voluntary contributions to fill gaps in their contribution record. For example, a contributor reaching state pension age today, who did not pay voluntary contributions in the 2006-07 tax year, would have until 5 April 2013 to pay those voluntary contributions, albeit at the voluntary contribution rate applicable in 2012-13. That gives those retiring the same wide degree of flexibility as someone yet to retire.

We do not believe that it would be appropriate to remove the time limits for paying voluntary contributions. It would be incongruous to allow people unlimited time to pay voluntary contributions when those who are employed or self-employed have no choice about when they pay national insurance contributions. Time limits are an important feature of the “pay as you go” system of NICs, in that current payments of contributions pay for current claims to contributory benefits. The amendment would distort that feature by incentivising delayed payment. We are not aware of any evidence that the time limits are too restrictive for those who generally pay voluntary contributions. Also, we would not wish to create an incentive for people to delay paying voluntary contributions until the last minute, because it would create additional complexity and add to the costs of administering those arrangements.

The amendment restricts to nine the number of years for which voluntary contributions can be paid over a working life by someone just about to claim their pension. I am not sure whether that was intended. That would be less generous than the current arrangement, which imposes no restriction on the number of years for which an eligible contributor can pay voluntary contributions, subject to the relevant time limits. You can pay class 3 contributions for 30 years so long as you pay them in each case within the six-year time limit. Such a restriction would add complexity to the current arrangement, and it would ill serve the very people whom my noble friend seeks most to help.

In conclusion, the existing time limits for payment of voluntary contributions are both appropriate and necessary. However, I recognise that some people would still not achieve a full basic state pension, despite the more generous arrangements in the Bill. But to allow them to make up missing years at the point when they are due to retire would require them to make complex financial decisions. For example, it might not be sensible for a married woman with a smaller basic state pension based on her own national insurance contributions to pay voluntary contributions when she reaches state pension age if she would be entitled to a higher pension based on her husband’s national insurance record. I understand the concerns that have been raised and assure noble Lords that we will keep under review the current arrangements for paying voluntary contributions. I remind noble Lords that changes to the time limit can be made by secondary legislation if they are deemed to be necessary.

On the issue of cost—although the amendment would apply only to people retiring post-2010—we have produced estimates that assume that people who are projected to reach state pension age in 2007, 2008 and 2009 without a full basic state pension, and assume that they buy as many extra qualifying years as are needed to provide a full basic state pension, up to a maximum of six years, when they reach state pension age. Those costs, which my noble friend described as “modest”, would provide net benefits in 2007, 2008 and 2009 of £1 billion, £0.5 billion and £0.2 billion respectively. Thereafter, there would be costs in the order of £0.8 billion, £0.9 billion through to £0.8 billion in 2030. Those costs would then begin to tail off.

Given the figures that have emerged today regarding the net additional cost of the gap between the price and the value of those increments for additional people who might come in—there are many less-than-robust assumptions about who might come in, and that is why the figures are difficult—what is the current deficit? At the moment, people are paying £161 million for 250,000 “people years” of class 3 contributions. What would the figures be if one applied the same arithmetic to the current arrangements?

I do not have those figures to hand, but will certainly provide them to my noble friend. I was about to say that many caveats surround the figures that I have outlined, as she recognised. We should be cautious about calling such costs “modest”, quite apart from the principles that would be involved in going down the path that we have suggested. For reasons of cost and practicality, on reflection, my noble friend would recognise that the precise drafting of her amendment does not achieve what she seeks. I encourage her to withdraw it.

I thank my noble friend for the detail of his reply, which I will work on. He made two points—one on the complexity and impropriety of delay and of being able to pay at any stage, and another point regarding costs. We will return to the issue of costs, but when I asked for the figures, I was told that they were not available—although some of them have become available on the day of the Committee. It is difficult to be certain about what is being compared with what. I hope that my noble friend will do the work for me on this, because I am not sure that I can. I have said that I would be perfectly willing to discover what the cost of a class 3 contribution would have to be to make it cost effective, both for existing holders, who, according to my noble friend, are getting a freebie ride—the better educated, students and so on—and for women who might have even greater need than at present. So there is a bundle of issues associated with cost that we must scratch away at.

My noble friend’s argument regarding time limits hinged on the question of delay. For the life of me, I do not understand the problem. My noble friend said that the amendment would incentivise delayed payments. Why does delay matter? At the moment, if you are in work, you pay your contributions as you go. If you know about it, you pay at the time. If you wish, you can pay for your whole life, as long as you do that within every six-year period, as my noble friend said. I do not understand why delay is even faintly relevant. Apparently you can buy 30 years of class 3 contributions at enormous cost to the Exchequer if you do it within six years, but we cannot, within nine years, apply the contributory principle to women who might come within the range of means testing at the end of their working lives, as the noble Lord, Lord Fowler, argued. I am sorry, but I am baffled by my noble friend’s argument on that. Perhaps he can help me further.

I will try to help my noble friend. The issue of timing is important. People who are employed pay national insurance as they go along. The opportunity to pay class 3 contributions for an extended period until six years after the tax year in question gives some leeway, but one has to ask whether it is fair when you compare someone who pays their pension contribution on day one in each pay period with someone who says, “I will store up my class 3 voluntary contributions and take a call on it at the end of my working life when I am about to retire”. There is a time cost to money and it seems to me that if we encouraged people to delay making their class 3 contributions until the last minute, that would have an impact on the National Insurance Fund. The scheme has a pay-as-you-go basis, as my noble friend is aware, and there are cost implications to that.

I am not sure whose speech I am interrupting but would the Minister have the same objection if, instead of “six years”, one simply inserted “nine years”, without the other parts of the noble Baroness’s proposition?

If the noble Lord is asking whether the Government would support the idea of being able to pay nine years after a relevant year, then obviously that is not a proposition that we have considered. We have no costings on that, robust or otherwise, but, again, it would move us away from encouraging people to pay on a reasonably expeditious basis. It seems to me that six years allows a reasonable amount of leeway but that nine years moves further away from that principle.

I shall withdraw the amendment but I still do not understand why payments have to be expeditious. Apparently they can be made for 30 years up to six years after the event. This cannot be an issue of cost. It is said that it is unfair to allow people to make extra contributions because of the additional cost to the rest of us, but we already allow 250,000 people years to be bought, often by students and so on who go on to be higher-rate taxpayers. However, apparently we are not willing to do this for women.

I cannot bottom out my noble friend’s argument. Why is it bad to make the payments at the end of your working life but good if you do it in the middle of your working life? Some women may know only at the end of their working life whether they need those extra years. If you cannot predict what you are going to need until you reach retirement age, you will be penalised, whereas a student, say, or someone who works all their life in a profession can predict what they are going to get and they can make the contributions. I am still completely baffled by why delayed payments are not permitted. Provided that the cost is right, what is fair for the gander should be fair for the goose.

Under the current system, if someone has been in employment for a number of years or, if working abroad, has been out of the labour market for a number of years and decides to make voluntary contributions, he must do so within six years of the tax year in question. Under my noble friend’s proposition, he would not have to make the payment at that time but would simply store it up and take a view of the situation in 20, 30 or 40 years’ time. My point is that there have to be timely payments into the National Insurance Fund.

As we are in Committee, perhaps I may ask a question. I have listened to the debate and, in particular, to the noble Baroness, Lady Hollis. Does the Minister agree that here we are talking about a very male-based contribution model? Inherently, many women’s lives are less predictable, so the point that the noble Baroness is making is very valid.

That may be right. The current system, which we are about to change, is very male-oriented. My noble friend has made that point with great conviction during Second Reading and on previous occasions, but we are changing the system.

Under the Bill—with all the credits that are available for people with caring responsibilities and with the truncated period of 30 years to get to full basic state pension—there is considerably more flexibility in a working life. It does not seem unreasonable to hold to the view that you can still make up contributions but that you must do so within six years. There may well be a case for looking at whether the deficiency notice provides sufficient information for people to make the right sort of judgments. However, if we go down the path of saying that people who want to make a class 3 contribution to improve their pension outcome need not do so until the end of their working life when they are about to get their state pension or, indeed, until possibly six years after that, that will change the landscape.

It seems to me that we are departing from a principle with which I thought we all agreed: namely, the contributory principle. At the moment, the only dent in that contributory principle is the six years relating to voluntary contributions. Extending that further will increase the debt until eventually it becomes a gaping hole, will it not?

The problem is that the contributory principle is based on a Beveridge-type principle, which, given the society at the time, was the male model of working life. However, it has produced many excluded groups. Governments of all complexions, very decently, have tried to bring more and more groups within the contributory system—since 1978 we have had HRP, disability benefits, various credits and the like and now this Bill. We can no longer simply tie this in to a pay-as-you-go system in a mechanical way—you pay it at a point in time. The six-year rule exists to help another group: for example, students and those who work abroad temporarily. There are still groups—these amendments seek to address them—who will remain outside any contributory system, yet most of us would regard their lives as valuable and we would want to see them brought within the system so that they can enjoy as full and as complete a basic state pension as possible.

This amendment would allow head space for that. Rather than having a series of one-off solutions—multiple jobs, grandparents, whatever—producing half a dozen different possible solutions, we can seek to do it this way. If we do not, I can promise my noble friend that, in a couple of years, someone else will return with another Bill trying to make good further deficiencies in a contributory principle that has been stretched and stretched. This is a contributory system that you pay at the end of your life to make good shortfalls.

I am still completely baffled why a delayed payment is inferior and bad whereas a payment within the six years is good. I find that incomprehensible. I am very grateful for the support from all Benches for the amendment. As my noble friend will expect, I shall return to the matter on Report in the hope that he can give me better news and more encouragement than he has been able to give today. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 agreed to.

[Amendment No. 5 not moved.]

Clause 2 agreed to.

[Amendment No. 6 not moved.]

Clause 3 [Contributions credits for relevant parents and carers]:

7: Clause 3, page 3, leave out lines 26 to 31

The noble Lord said: We move on to carers and, in this amendment, to a particular group of carers who concern me a great deal. Members of the Committee may have heard a harrowing report on the “Today” programme a few weeks ago concerning children with disabled parents who cope with school and caring activities. I came to know about their plight some years ago when the Stroke Association started giving annual life-after-stroke awards. One of those is a carer’s award which is frequently won by children.

My amendment is a probing amendment on an aspect of the carer contribution reforms that I do not believe was debated as the Bill proceeded through another place. Specifically, I wonder how current arrangements stand, should stand and will stand in relation to children who are carers. What happens to them after school-leaving age? No doubt some will get part-time jobs, but others will become full-time carers and be unable to start work because of their caring responsibilities. I do not know—I hope the Minister will tell me—whether I am talking of a constant number, or of a growing band of children. Since I tabled the amendment, it has been suggested to me that the latter is the case, but I simply do not know. Whatever the case, those children do an incredibly difficult job and one that, in the past, society has tended not to notice or to make accommodation for.

The reforms in the Bill will, of course, make it easier for these children to move into their adult years without being penalised, rather than rewarded, for their exceptional contribution to society. I particularly welcome the change that means that it is no longer necessary for a person to have paid at least a year’s worth of contributions before he or she can claim a pension. I repeat that some children today will never have an opportunity to take a full-time job, whether because of the weight of their caring responsibilities or because those responsibilities prevented them getting as good an education as they might have had or for many other reasons. I hope that the Minister will be able to reassure me that these children will be moved on to the system swiftly and simply and will receive contribution credits when they reach school-leaving age.

Employment is an extremely important subject in the context of the Bill. It is not just about the wage received. Numerous studies show that the employed are healthier and happier. Social networks are increased, self-confidence grows and carers will be much better served by a Government who concentrate on providing sufficient support so that they are able to enjoy a full life outside their caring responsibilities. However, for some people, perhaps many people, that is not the case, so I beg to move.

I shall speak to Amendment No. 8. I am fully aware that it is pushing at an open door. After Second Reading, the Minister sent a helpful letter setting out how the new policy of carer’s credits for those caring for at least 20 hours a week would work in the light of the agreement now reached that if carers looked after those not in receipt of certain benefits, they could still qualify if certified as carrying out this important work by a health or social care professional. Not only will this new right build up entitlement to the basic state pension, it will also increase the number of people accruing entitlement to the second state pension. In the letter, the Minister reiterates the announcement made by James Purnell, the Minister of State for Pensions Reforms, and goes on to say:

“You may wish to note that he”—

Mr Purnell—

“also stated that we would explore how health and social care professionals will be involved in the certification process for the carer’s credit through the review of the 1999 national carer’s strategy”.

I gather that that is due to be completed by the end of this year, after which the relevant regulations are expected to be laid.

This all sounds fine, but we need some cast-iron guarantees. The word “explore” and the phrase,

“due to be completed by the end of the year”,

could lead to drift, particularly as there is a little time in hand. Can the Minister assure the Committee that there will be no foot-dragging in the area of deciding exactly who can qualify as a carer and who can certify a carer? I am certainly not ungrateful for the way that the Government have moved on this matter, but we need a few more certainties on the record.

My grouping list includes Amendments Nos. 12 and 13 in this group. If they have been ungrouped, I stand to be corrected.

The Committee showed me great indulgence on the previous amendment, so I shall very briefly say that I support this amendment. However, the difficulty is that this provision remains very fluid. None of us doubts the intention and good will of the Government in this respect, but it depends on the carer’s strategy coming through and being embodied in regulation. Indeed, it depends on Ministers in the department—who may or may not be the same people after any reshuffle—being persuaded of the same position. We have seen the Government desirably change their views on this during Committee, and I would like to see that embedded in the Bill. However, I accept that this may, more appropriately, be a matter for regulation, so can my noble friend show us the draft regulations that are due to be published within, say, six months of the Bill, so that we can at least have the assurance that the intention is covered if not in the Bill, in regulations? If my noble friend feels unable to accept the amendment as currently described, can she at least help us on that?

I am delighted to respond positively to the debate on behalf of the Government. This is not a personal response, so I hope that it will be a long-lasting response.

Clause 3 has the effect of replacing home responsibilities protection with a new more generous system of contributions credits for carers. Before turning to the amendments, I shall set out how the provisions in the clause achieve that. It is important to take a few moments to do so for the reasons raised by the noble Baronesses.

The pensions system has recognised the valuable contribution of full-time carers since the mid-1970s. Home responsibilities protection—or HRP, as it is commonly known and has been referred to today—recognises three broad groups of carer: first, those undertaking a parenting role, including parents awarded child benefit for a child under 16; secondly, registered foster carers since 2003; and, finally, those caring for severely disabled people.

Although at first HRP was a ground-breaking recognition of other ways of contributing to society alongside working, aspects of it make carers less certain about the state provision they will get when they reach pension age. In order for HRP to protect someone's basic state pension, that person must be in one of these categories for a complete tax year, as has already been mentioned. For example, if a woman had a child in May and was subsequently awarded child benefit, from that point she would not necessarily qualify for HRP that year. HRP provisions would take effect from the following tax year, with each complete year of HRP reducing the number of qualifying years needed for a full basic state pension.

HRP has worked well, but it is difficult for people to understand. Clause 3 will be much simpler. It introduces new contributions credits for relevant carers. And, as with all national insurance credits, they will be available to people from age 16—and I hope that offers some reassurance—until they reach state pension age. I shall speak more about 16 year-olds in a minute.

Moving to a system of credits will address the more negative aspects of HRP. People can combine part years spent caring with time spent working, or some other credited activity, in order to accrue sufficient contribution credits for a qualifying year. Each qualifying year is recorded against the 30 needed for a full basic state pension, making the system simpler to understand.

I turn to Amendment No. 7. There are three groups of carers—not so very different from those recognised under HRP—who will benefit from the contributions credits under Clause 3. These are set out in subsection (3) of the clause, the subsection that the noble Lord, Lord Skelmersdale, seeks to remove—although I appreciate his amendment is probing.

The first and second groups are persons awarded child benefit for a child under the age of 12 and approved foster parents. The third category of carer is those “engaged in caring”, and the definition of this group will be set out in regulations. I shall explain more about this group and the approach we are taking. I wish to offer as much reassurance to the Committee as possible. The Government are very proud of this area and to be moving forward providing additional support for carers.

Currently, HRP can be awarded to someone looking after a severely disabled person for at least 35 hours a week. However, very few people claim it. Only about 1 per cent of HRP is awarded for care of severely disabled people, as most people who provide this level of care receive credits through the carer’s allowance. However, we recognise that those providing at least 20 hours of care a week can be disadvantaged in the labour market. For this reason, the proposed regulations will ensure that anyone in this group will be able to claim the new carer’s credit.

When we introduced the Bill, we stipulated in the accompanying delegated powers memorandum that the person or persons being cared for should be entitled to the attendance allowance, the middle or higher-rate care-component disability living allowance, or the constant care attendance allowance. We did this originally so that we could take a light-touch approach to determining entitlement to the credit, but we have listened to representations from a number of organisations and to the debate in another place. That is why my noble friend reiterated at Second Reading the Statement on the carer’s credit made by my honourable friend James Purnell, the Minister for Pensions Reform.

To be absolutely clear, there will be two routes by which people will be eligible for the carer’s credit, and they will both be covered in the regulations. First, as I have stated, the carer’s credit will be available to those caring for at least 20 hours a week for one or more severely disabled people with certain qualifying benefits. Secondly—this is the important point—a person will be eligible for the carer’s credit if they are certified by a health or social care professional as caring for at least 20 hours a week, irrespective of whether they are caring for someone with or without benefit entitlement. Through this second route, we are providing even more flexibility to deal with the situation whereby the person being cared for is not entitled to one of the specified benefits or chooses not to claim it. In this case, the carer will get the carer’s credit if they are certified by the health or social care professional as caring for at least 20 hours a week. We plan to explore this process fully through the review of the national carer’s strategy, in which carers’ organisations are actively engaged. I stress that this is a consultation on how the process will work and not on whether the regulations will include this alternative route. This has been stated in the Commons and restated here on Second Reading, and I make these points for the record now.

We do not believe that it is necessary to put a separate definition in the Bill to recognise those certified by health or social care professionals as caring for at least 20 hours a week, which Amendment No. 8, tabled by the noble Lord, Lord Oakeshott, seeks to do. The same effect will be achieved through the regulation-making power that is already set out. Importantly, the regulation-making power will give this and future Governments the flexibility to reflect the changing nature of care over time and the needs of an ageing population.

I hope that I have been able to reassure noble Lords. The noble Lord, Lord Skelmersdale, made a point about child carers. I, too, recognise the enormously important role that young carers play. I should state for the record that children under the age of 16 who may receive the carer’s allowance will receive credits in the same way. Young adults of 16 and 17 also receive starter credits. I, too, believe very strongly that young adults of 16 and 17 should be advised of their entitlement and moved swiftly and confidently on to these credits. The Children Act has provisions for local authorities to pay particular attention to the needs of child carers and to their needs when they turn 16 and become young adults. That should be in place, particularly for children who are being treated as children in need. I hope that I have offered the reassurance that noble Lords seek, and that the noble Lord will withdraw his amendment.

I, for one, never intended to press my amendment, but I think that there will be universal approval for the Minister’s speech. On my amendment, I am particularly glad to hear that carer credit will be available to young adults of immediately post school-leaving age. However, I am not sure that the local authority is the right body to tell them. If a young adult has been in receipt of care allowance previously, the department would be in a good position. If they have not been in receipt of such an allowance, it is rather difficult to think who would be the best person to advise them or to whom they should apply for advice. Perhaps the GP or the healthcare professional might be the appropriate person, but we can all think on that because there will be time before the regulations are laid before us.

On whether the noble Baroness’s amendment should be in regulations or not, yes it should. Since everything else in this clause is being done by regulations, it is perfectly logical that this should be too. With those remarks of praise to the Minister, who I note is unisex because I called her the noble Lord a few minutes ago, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 8 not moved.]

9: Clause 3, page 4, line 17, at end insert—

“23B Contributions credits for relevant grandparents and other relatives

(1) This section applies to the following benefits—

(a) a Category A retirement pension in a case where the contributor concerned attains pensionable age on or after 6th April 2010,(b) a Category B retirement pension payable by virtue of section 48A in a case where the contributor concerned attains pensionable age on or after that date,(c) a Category B retirement pension payable by virtue of section 48B in a case where the contributor dies on or after that date without having obtained pensionable age before that date,(d) a widowed parent’s allowance payable in a case where the contributor concerned dies on or after that date,(e) a bereavement allowance payable in a case where the contributor concerned dies on or after that date.(2) The contributor concerned in the case of a benefit to which this section applies shall be credited with a Class 3 contribution for each week falling after 6th April 2010 in respect of which the contributor was a relevant grandparent or a relevant relative.

(3) A person is a relevant grandparent in respect of a week if the person is engaged in looking after, within the meaning given by regulations, a grandchild or grandchildren under the age of 12 or a disabled grandchild or grandchildren under the age of 18, in that week.

(4) A person is a relevant other relative in respect of a week if the person is engaged in looking after, within the meaning given by regulations, a child or children under the age of 12 to whom he or she is related or a disabled child or children under the age of 18 to whom he or she is related, in that week.

(5) In this section “relevant other relative” shall include but shall not be confined to a sibling, half-sibling, aunt, uncle or cousin of the child or children who is or who are being looked after but shall not include a registered childminder.

(6) Regulations may make provision for a person’s entitlement to be credited with Class 3 contributions by virtue of falling within subsection (3) above to be conditional on the person—

(a) applying to be so credited in accordance with the prescribed requirements, and(b) complying with the prescribed requirements as to the provision of information to the Secretary of State.(7) For the purpose of determining entitlement to a benefit to which this section applies, a week that falls partly in one tax year and partly in another is to be treated as falling in the year in which it begins and not in the following year.

(8) In this section “the contributor concerned” has the meaning given in section 21(5)(a).”

The noble Baroness said: This amendment is necessary if Amendment No. 4 concerning added years is not acceptable to my noble friend. Amendment No. 9 proposes that a relative, probably but not essentially a grandparent, who cares for a child under 12 for 20 hours a week or more, to be specified in regulations, would be eligible for credit to his or her BSP. Clearly, this is a probing amendment at this stage. Why? The average age when a woman becomes a grandmother is now 49 or 50. She provides childcare in order that her daughter, who may be a lone parent, can work. Some 2.33 million women in work have children under 12 years old and they pay tax and national insurance.

Theoretically, those women would be eligible for HRP if they were not already paying for their own full stamp. They work because they have childcare. For one-third of them, their primary child minder is the grandparent. Why? Childcare is a matter of trust. You feel comfortable and less guilty working. Most women I know who work with young children have an edge of guilt and concern. They feel less guilty if their young child is looked after and loved as they would do, and they get that from their own mother. If a child is poorly, a woman would trust their mother to take him or her to the GP in a way that a registered child minder—certainly, a nursery—probably could not or would not do. Because the grandparent is childminding, the daughter can and does work. I have been briefed on this by the West Norfolk Women and Carers’ Pensions Network. It can be an issue particularly in a rural community where travel to work is harder, wages are lower, commercial childcare is less available, families are less mobile and there is therefore much more likely to be reliance on grandparent care.

However, that care comes at a huge price to the grandparent who may, in her fifties, otherwise have been able, finally, to work full time. But if she does, her daughter may not be able to do so. The grandmother loses any potential income from a full-time job and, with it, loses any entitlement to a BSP. Yet, although the daughter gets HRP, in theory, and pays a stamp—a double-qualification—neither can be transferred to the mother. What is worse—which is why this really is a problem—is that, because the childcare is provided by a grandparent, the grandparent cannot be registered as an official childminder and cannot be paid childcare tax credit. That is extremely unfortunate; indeed it is daft. I hope that no one will talk about the commercialisation of family care. We do it all the time when we call it the carer’s allowance for older people. The result is that grandmothers still undertake the care, but daughters cannot claim childcare tax credit for their mothers and therefore can seldom afford to pay for that care, unlike the position if their child is cared for by a relative stranger. Instead the daughter may do her best to help with grocery or petrol expenses. Both the mother and the daughter are stuck. Let us be clear: without care by grandmothers, many daughters would not and could not contemplate work. With that care they do work, but courtesy of a degree of loving exploitation gracefully given by a woman in her fifties who loses income and pension.

The amendment proposes that where 20 hours of care are established and the parent is in work, the notional HRP that has been forgone should effectively be transferred and become a childcare credit for pension purposes for the carer. It then becomes something of a win-win situation: a secure, stable and loving environment for the child; a less guilty and stressful working life for the mother; and even if income is forgone by the grandparent, the pension has not been lost.

I know how receptive and responsive my noble friend has been to the issues faced by some grandparents, so I hope he will recognise that this is yet one more problem encountered by women in their fifties. It would disappear if Amendment No. 4 were embraced, but in the absence of that, I wonder whether my noble friend can help me on Amendment No. 9. I beg to move.

I pay tribute to the West Norfolk Women and Carers’ Pension Network, part of the Equal Opportunity Commission’s pensions network, for raising this important point on behalf of mothers and grandmothers. In her thoughtful speech, the noble Baroness, Lady Hollis, gave us some interesting statistics, and I have one or two more. The 41 per cent of women who work part time earn on average 41 per cent less per hour than men working full time. That gives us some idea of the gap. Further, parents in a weak labour-market position, such as unskilled workers, often find it harder to negotiate family-friendly working arrangements with employers and to find jobs that fit in with their parental responsibilities. Their bargaining power in the labour market is clearly not high. We agree with the West Norfolk Women and Carers’ Pension Network that more work needs to be undertaken nationally to discover the full effect of how grandparents miss out on state pension provision.

Like us, the noble Baroness, Lady Hollis, supports a universal citizen’s pension, but to be honest, we are sceptical about whether this amendment is on the right side of the line of how far one should go down the route of introducing lots of individually tailored changes. That is what worries us. If I may put it this way, the more tweaking and complexity introduced to try to patch up this broken system, the more complicated it gets. On balance, and with reluctance, we feel that this is probably a complication too far. We would prefer to go for more universal amendments short of a citizen’s pension. However, I pay tribute to the pensions network for raising the issue. It is something we need to keep a close eye on.

Finally, I was struck by the way the noble Baroness talked about loving exploitation, particularly the edge of guilt in the relationship between mothers and grandmothers and the issue of childcare. Just last Saturday lunchtime, my daughter, who is not even married yet and so far as I know has no immediate plans to have children, casually said to her mother, “Mum, when I have kids, would you look after them for two days a week, please?”. I hope that my daughter is going to be a well-paid barrister and thus able to afford childcare, and my wife is a doctor with no plans to give up work. She said, “Certainly not. At least, not unless there is a problem”.

I speak as chair of the All-Party Group on Grandparents and Extended Kin. I agree completely with the noble Baroness, Lady Hollis, that it would be better if we did not have to make small adjustments. Anything that can help grandparents to retain their pensions rather than suffer the tremendous disadvantage that so many of them face at the moment when compared to non-family carers would be welcome. It is grossly unfair. In many instances social services will come round with the child and say to the grandparent, “Will you look after this child?”. The grandparent will obviously say, “Yes”, and therefore exclude herself—it is usually “herself”—from the benefits that would have been available to someone who was not a relative. That is only one example of the awful things that happen to grandparents. At least we could help them through the amendment not to lose out on an entitlement to a pension. I support the amendment with the same reluctance as the noble Baroness—we would prefer something better—but, in the circumstances we face, anything to help grandparents would be welcome.

I support the amendment, not with reluctance but because it is crucial to face this issue. A huge number of grandparents are now involved in supporting their daughters and sons—usually it is their daughters—so that they can have a full working and parenting life and not be in the same position the grandparents are in now. There may be a better way of doing this—I accept that—but we are asking the Government to find a better way to deal with this situation and, at the same time, to acknowledge the amazing extra sacrifice being made by this generation. I very much support the intentions of the noble Baroness, Lady Hollis.

I do not want to go into my family history in the same way as the noble Lord, Lord Oakeshott, but, on these Benches, we fully support the idea that government benefits should not unintentionally penalise those families who support each other with the upbringing of a child. So, to that extent, I go along with the amendment. Having a grandparent or other close relative to rely on for help with childcare, whether it be on a regular basis or for emergencies only, can be a critical factor for a parent in deciding whether or not to go back to work. That, of course, is the best way of ensuring that a child is not brought up in poverty.

There is also, unfortunately, a rising number of families in this country where neither parent is capable of bringing up a child for one reason or another. In this situation it is almost certainly the case that it would be better for the child to be looked after by the extended family rather than to be sent into care. But—and there always seems to be a “but” in my responses to the noble Baroness’s amendments—I see a small problem in the amendment, to which I am sure the Minister will allude. The amendment appears to make contribution credits payable twice for the same child, once for the parents and once for the grandparent. I have tabled a later amendment that relates to the reallocation of child benefit—which, in a sense, is linked—and it might be a more appropriate way of dealing with the situation. I am sure the Minister will tell me, perhaps before the noble Baroness tells me I am wrong.

I take the point that the amendment may be inappropriately and badly drafted but it is intended to apply to those daughters who are in work, paying national insurance and tax, and who have a child under 12. It would qualify them if they were not drawing down HRP because they are already covering themselves through NICs. That is the point about the double provision and why I did not think the amendment contained the error suggested by the noble Lord.

I, too, support the amendment. It was interesting to hear the comments of the noble Lord, Lord Oakeshott, but, with all due respect, many grandparents are not in a position to respond in that way. With the increasing fragmentation of the family in the UK, this is a growing problem. The amendment is not an ideal way of dealing with this situation—we would prefer something in the Bill that took out some of the complications—but it is a way of raising the issue. All of us who support the amendment would love dearly for the Minister to come forward with a solution. If we do not raise this issue in this Bill, we will have no other opportunity to do so.

There are grandparents and parents out there who are acting as carers, but not because they want to. I think most grandparents would love to say no, but they do not have the opportunity. That is certainly the case in our family. I shall be interested to hear the Minister’s reply to this discussion and I hope we will see some movement on the issue.

I support the amendment and what has been said succinctly by my noble friend in moving it. It seems that every effort has been made in the amendment to try to ensure that the extended family is covered. Subsection (5), for example, describes what is meant by a “relevant other relative”, but it also says, “shall not include a registered childminder”. In other words, it is clearly directed at the grandparents and the extended family, which is terribly important in the current situation. It may be important for ethnic minorities, where the extended family is important and there may not be any other form of benefit for the people who look after the child, such as the grandparents.

This is an important amendment. Even with all the difficulties that we know are involved, we still have to find a way through in order to give the relevant benefit to the relevant people.

I fear I am going to disappoint my noble friend yet again, but I hope I can convince her that in doing so we have a good basis for supporting grandparents. I am conscious of the heroic efforts of many grandparents in supporting their children and their grandchildren. I have had the opportunity twice in recent months, together with the noble Baroness, Lady Massey, to meet groups of grandparents and understand some of the tragic circumstances that they have encompassed in their lives and the struggles they have. We reasonably address their circumstances under the Bill.

Broadly speaking, the amendments seek to give national insurance credits to a relevant grandparent or other relative who is engaged in looking after a child to whom they are related. In the debate on the previous group of amendments we discussed how we intend to define “engaged in caring”. It would be interesting to hear from my noble friend how we define “engaged in looking after” and how that differs from “engaged in caring”. In the debate that has taken place we have to a certain extent conflated those two concepts, and it is important that we separate them. “Looking after” could be more occasional, and something less than “caring”.

We already have a tried and tested way of identifying those who are looking after children, through the award of child benefit—which also carries with it HRP, as my noble friend said, or, from 2010, the new credit. That credit can be switched to whichever parent needs it, provided that the child benefit is switched as well. The noble Lord, Lord Skelmersdale, will press that point in an amendment to which we will come shortly. In other words, the credit goes with the child benefit, as it is awarded in recognition that the parent is the primary carer of the child, usually the mother.

However, there is existing provision for parents to relinquish their child benefit award. I assure noble Lords that HMRC, which administers child benefit, takes great care to ensure that parents or other child benefit awardees are aware of their right to relinquish entitlement to it in favour of the person who gives up work to look after the child. Certainly, some of the grandparents I have met are in receipt of child benefit. They are entitled to it because their children, sometimes for very tragic reasons, have given up the care of their child. It follows logically that if grandparents or other relatives take on the role of primary carer, they would be entitled to child benefit and the credit in their own right. The credit would run for S2P as well as the basic state pension, something not covered by the amendment.

I neither underestimate nor undervalue the role that grandparents or other relatives can play in looking after a child. However, research suggests that the majority of those providing any childcare do so for just one or two days a week. I would distinguish the childcare that takes place in tragic circumstances following the death or effective loss of a child, perhaps through drug or alcohol dependency, from the casual support that people give their grandchildren.

That statistic about caring for grandchildren one or two days a week on average gives credence to the view that most grandparents—or, rather, family relatives—do not generally perform the role of primary carer and may not therefore be disadvantaged when looking for work. On that basis, it would be wrong to award class 3 credits to the generality of grandparents rather than, as the Bill does, supporting those grandparents and others who are involved in caring.

We have just discussed our plans for a new carer’s credit. There is no reason why a grandparent should not be eligible for the carer’s credit if they fall within the relevant criteria. For example, a grandparent might be providing care of 20 or more hours a week for a disabled grandchild to provide the mother with breathing space. Even if the mother is in receipt of carer’s allowance for that child, there will be no reason why the grandparent should not be eligible for the carer’s credit.

In another situation, a person may be providing 20 or more hours care a week for their son or daughter, who is suffering from drug or alcohol dependency, as well as taking care of their children. In those circumstances, the grandparent could be eligible for the carer’s credit for looking after their son or daughter if they were either receiving the appropriate benefit or the need for care was certified by a health or social care professional.

Furthermore, by definition, today’s grandparents were yesterday’s parents. If they retire after 6 April 2010, they will benefit from the conversion of years of home responsibilities protection from 1978 onwards, in respect of their own children, into years of credits, and of course from the reduction to 30 qualifying years to help them qualify for a full basic state pension. As a result of the Bill, a combination of credits for being in receipt of child benefit for their children and subsequently credits for caring for their children, or the award of child benefits for their grandchildren, could mean that only a few years of intervening work would enable them to achieve a full basic state pension. This is a major change resulting from the Bill.

In my view, there is a significant difference between providing care and looking after somebody. We have sought to protect the pension rights of someone providing significant levels of care, either as the primary carer of a child or a disabled person. That is not the same as looking after a child on an occasional or ad hoc basis. Of course there can be hard cases but I hope the examples I have given show that what we are putting in place will provide effective coverage. I have not dwelt on the practicalities of pursuing the route that my noble friend suggests, but there are clearly practical implications for establishing the credit, should the amendment be adopted.

As I said, I do not underestimate the importance of the role of grandparents or indeed other relatives in modern families. However, I believe that the amendment would be a step too far in supporting grandparents generally for doing what they have always done—providing help and support for their families. In the light of this, I ask my noble friend to withdraw her amendment.

I thank the Minister. He is known colloquially—I think that one of his friends has said it—as the Minister for Grandparents, so I know how much he has taken to heart the plight particularly of those grandparents who are at the extreme end of pressured, dysfunctional families, where the parents are unable to take care of their children. If anybody can fight to help to improve their situation, I am sure that it will be my noble friend.

I accept his points about the technical difficulties of the amendment. I accept that transferring across is not straightforward, which is why—I am sorry if I sound like a gramophone record—we really need Amendment No. 4, which would address the problem. If we cannot agree to Amendment No. 4, we shall have to find some other way and keep going after pockets of individuals with tailored solutions. I disagree with the Minister’s suggestion that we might appreciate that we have in place “effective coverage for grandparents”. No, we do not. What we have—I welcome my noble friend’s remarks on it—is greater protection and support where either the grandchild or their parent is disabled. My noble friend’s comments in that regard were very helpful.

However, where a grandparent is engaged in steadfast caring for a child—I am talking about 20 hours a week or more on a regular basis—in, let us say, a rural community, where one is unlikely to be able to find alternative commercial care for a two year-old, I do not understand the distinction between caring and looking after. When I looked after my two year-old, I was caring and looking after at the same time. It is not a valid distinction. We are talking about somebody whose hours of committed, reliable caring are such that they take that grandparent out of the labour force to enable the daughter to be in it. At that point, the grandparent loses their income, because they are not receiving child care tax credit—that is perhaps a battle to be fought on another day—and their pension rights as well. I am afraid that nothing that my noble friend has said today gives me comfort on that front.

He asked for some way of checking. We currently have a child care tax credit, which is a high-value payment, being worth £150 or more, and there is a fairly flaky audit trail on to whom it is being paid. Whatever system we have for that can certainly apply perfectly well for someone who is seeking merely to acquire a pension credit as opposed to an income payment. A district health visitor could make an occasional check while on a call that they would probably make at any rate on a two year-old at home. A GP could authorise it in a similar way. There are plenty of people who interface with the lives of those children, their parents and their grandparents if an audit trail is needed.

If a parent, particularly a lone parent, is in work full time and has a child under 12, especially a child under five, we know that someone has to look after it. If the parent is not claiming child care tax credit, it almost certainly means that the primary carer is the grandparent or a family relative. If it was anybody else, they would be able to claim child care tax credit. Ergo, there is a grandparent involved; ergo, somebody is failing to achieve the protection that they would get through entitlement to a basic state pension if they were in the labour market. The problem that the Minister identified does not exist.

Does my noble friend not accept that, under the 30-year rule, if somebody is a grandparent, even with the 12-year credit rule for their children, 12 of those 30 years are already covered? However extensively they are caring for or looking after—we could debate what those concepts may mean—children grow up. They will not necessarily absorb the whole of the rest of the working life of the grandparent. The 30-year contribution rule, together with the other changes—the de minimis provisions and the mixtures of credit and payments-in—makes a significant difference to the position of grandparents that my noble friend describes.

My noble friend is absolutely right that the 30-year rule would help, but he is assuming that only one grandchild is concerned, that that grandchild grows up and the grandparent can then go back to work. We are talking about perhaps two grandchildren growing up or two families, with two or three daughters needing help, particularly in rural communities. We could very easily be talking about a situation where the people concerned may bring up their own child and receive HRP, manage two, three, four or five years in the labour market and then, from age 50 to age 65, provide almost continuous child care for grandchild after grandchild. My noble friend can do nothing to help them except to ensure that they go into old age without a pension of their own.

That really is not correct. If we examine the circumstances that my noble friend describes, presumably the grandparent is likely to be in work for a period before having children. That is not necessarily the case but it is possible—so there are opportunities there to build for the state pension. If the grandparent has only one child, 12 years’ worth of credits will be earned, so if nothing else happened there would certainly be an entitlement to a proportion of the basic state pension. At that level it would not be the complete state pension. If you assume that after that period there was no engagement with the labour market and no other entitlement to credits, what my noble friend says is right—except that at least on that basis a proportion of the basic state pension would be available to that person.

I entirely agree. My noble friend is right that if that person has had a job there will be 12 years under the new regime under which they will acquire HRP protection as of right. They may at that point, for three, five or eight years—who knows—be in the labour market. However, the average age to become a grandparent is 49, which means half of those people become grandparents before that age and half after it. Obviously, some will be caring after the age of 60 or 65, but none the less a substantial number of women will find that the whole decade of their lives between the ages of 50 and 60 is taken up in childcare.

I do not doubt that some women will be able to cobble together a 30-year record in bits and bobs, and I am delighted if they can. But they will not know that necessarily until the day before they retire, and they will not be able to buy additional years, which would allow us to help them to overcome the problem.

They would be able to buy six years under the current arrangement, so that is another six years of entitlement to basic state pension.

Yes, but the point is that they may start caring at 50; they would hope to finish at 55, but their daughter may have another child and they may find themselves in a further caring situation. At 58 they cannot buy back the years that they have missed at 50 or 51, as my noble friend explained so clearly earlier.

I do not doubt that some grandparents will be able to cobble together some coverage, but I am concerned about the ones who cannot or will not. This amendment is not the best way in which to deal with the issue, but it may be the only way in which to raise it, given the Government’s reluctance to address other ways in which to deal with grandparents’ problems. Grandparents who take on the bulk of childcare, possibly for a decade or more, for their children, lose out on their pension rights and, because they are not allowed to register as childminders, lose out on childcare tax credit, too.

I am not comfortable that the amendment is the right form for this proposal because it would introduce technical difficulties about transferring across, but I am very grateful for the support that I have received. It has been a very wide-ranging debate. There is a problem to be addressed here. I am not saying that this amendment is the right way in which to resolve that problem—I am not persuaded that it is myself—but there is a problem here that women, particularly women in rural communities, low-paid women, parents of lone parents and so on, take on a responsibility for which they pay a very high cost. Some of them will find themselves without a full basic state pension when they enter official retirement. I hope that my noble friend will find ways in which to address this problem.

I should like to probe a tiny bit further. Clearly the Minister has addressed a lot of ways in which the group that we are discussing is being helped, especially with individuals with serious problems. We are dealing with a generation in which grandparents, particularly the older ones, are seeing a transition from a group who, like them, did not go to work, to a group who are automatically going to work. It is part of the routine; from day one they are beginning to earn their pension. Those grandparents are making an extra-special effort to help their children to ensure that they are in that position.

I support what the noble Baroness, Lady Hollis, has said. We agree that the amendment may not be the perfect way in which to do this, but can the Minister think a bit longer about the issue and see whether there is any way in which he could address this particular point? This is a hugely important period of time for equal opportunities, in which grandparents are willingly playing a particularly heavy price.

Will the Minister consider one other thing? Somewhere in the Bill could there not be a line that stresses that grandparents who care for 20 hours or more a week should not be discriminated against in terms of pension rights compared with non-family carers? I do not know whether that is the right way in which to do this—but if there were some line to that effect it would help enormously, because at the moment they are gravely discriminated against.

With the force of argument that has been made, one will continue to reflect on this matter. However, unless I am missing the point, it is not right to say that grandparents are discriminated against in these provisions in comparison with non-grandparents. They are in exactly the same position.

To recap on the journey that grandparents could take—even under the scenario that the noble Baroness, Lady Howe, outlined, which I do understand—a grandparent would presumably have the opportunity to start off in work at the start of their lives. They may possibly give up work when they have children, but then be entitled to the credit for 12 years—so there are two tranches of contribution towards the basic state pension. Even if for the rest of their life they were involved in caring for children in a way that did not produce any credits for them, under the provisions, they could buy the final six years—or any of those six years over that period. If you top that up—and those would probably be fairly unusual circumstances—quite a significant tranche of basic state pension would be available because of that. We need to keep this in context.

I shall continue to reflect on the matter.

With that assurance, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 10 not moved.]

Clause 3 agreed to.

11: After Clause 3, insert the following new Clause—

“Review of pension credit entitlement

(1) The Secretary of State may from time to time, and shall when required by subsection (2), lay before each House of Parliament a report on—

(a) current rates and coverage of pension credit entitlement;(b) likely future rates of pension credit entitlement; and(c) such other matters as he considers to be relevant as affecting the present and future take-up of and eligibility for pension credit.(2) The Secretary of State shall lay such reports—

(a) five years after the coming into force of Part 1 of this Act; and(b) thereafter at intervals of not more than five years.”

The noble Lord said: I briefly mentioned pension credit at Second Reading and I should like to return to the issue again now. When debating this topic, the Government are always quick to remind us about the benefits of the pension credit scheme. The system has the potential to do a lot of good for quite a lot of people, which is why we on these Benches have no intention of abolishing means-testing or the pension credit scheme, although improvements are badly needed.

These benefits are often trumpeted by the Government to hide the unfortunate effects of pension credit on many other people—people who do not claim the credit to which they are entitled and see their small personal savings result in swingeing cuts of their benefit levels, and the huge number of people who will become subject to intrusive means-testing. Your Lordships will note that this is a problem that will persuade some people not to invest in the new national pensions saving scheme, but that thought will get further discussion later.

There is no doubt that pensions credit is formidably—not to say intimidatingly—complicated. Every report and research study shows that the problem is getting worse. Nearly £2.5 billion goes uncollected, which means that more than 1.5 million pensioners do not receive what they are owed. Indeed, the problem is so bad that the Government calculate the cost of pension credit on the assumption that huge amounts of benefit will not be claimed and so do not need to be funded outside public expenditure. How magic!

Means-testing is also failing those who do take up the benefit at that end. The current levels of means-testing, even after reforms in this Bill, will still leave 30 per cent of pensioners eligible for pension credit, and that is the best possible outcome. That is still 30 per cent of pensioners who have no incentive to save, because what money they can put aside will immediately be clawed back by the system and the Government.

This amendment is not hugely radical. The Department for Work and Pensions already produces lots of information, and covers that information in an annual report. However, that is clearly not enough. We must be clear that the reforms in the Bill will reduce pension credit entitlement as promised and that take-up must be improved. I beg to move.

The noble Lord, Lord Skelmersdale, made a brief but powerful attack on the evils of means-testing and I do not propose to duplicate his figures. However, given the scandal of 1.7 million or 1.8 million people—whatever the figure is—not receiving the pension credit to which they are entitled, the disincentive effect of means-testing and the problem for people under the national pensions savings scheme, I was a little surprised that he did not seem to feel that we should take stronger and bolder action to reduce means-testing. Be that as it may, we all agree that there is a problem.

We on these Benches still have an open mind on the amendment. As the noble Lord said, the department already provides most of this information. I am not against the Secretary of State’s making a regular report but I am not sure whether it is more appropriate to ask the Secretary of State to do another report or to ask a more independent body to do it. Perhaps we can return to that when we come to the provisions on the Personal Accounts Delivery Authority and our Amendment No. 111. We are thinking of having the authority do it so that it can specifically look at and link in the effect of means-testing, estimates of the amount of means-testing, and the effect that that has on whether people should be saving through auto-enrolment and so forth.

The noble Lord’s amendment and our later amendment both call for a number of other reports. We will have to wait and see how the discussion on other report-seeking amendments goes, because we do not want to create a report overload. However, I accept the broad thrust of this amendment. We will need further discussions before Report to see how hard we should press each of these report-seeking amendments.

I say in parenthesis that I was quite cheerful in the debate until the noble Baroness, Lady Hollis, revealed that the average age of grandparents was 45.

It makes almost no difference to the point that I was going to make. Having become a grandfather for the first time three months ago, I hope that the noble Baroness recognises the contribution that older grandparents can make.

I strongly support this amendment and congratulate my noble friend on proposing it. It is one of the more important amendments that we have so far debated and potentially one of the most important on the Bill. However, I agree with the noble Lord, Lord Oakeshott, that it would be much better to have an independent commission do this type of review.

My noble friend Lord Skelmersdale and I come to pension credit from rather different viewpoints. I think it fair to say that he was rather sceptical about it. I have always supported pension credit, and indeed Ministers have sought to embarrass me by almost always claiming my support for this proposition. The basis for my support was that it seemed to me entirely right that we should help those who had been unable to build up a pension of their own, through no fault of their own, to have some extra income in retirement. I never envisaged that it would become a permanent part of the pension landscape. The aim should be to give the opportunity to as many people as possible to build up an adequate pension, therefore doing away with the need for pension credit in the first place. That is what all our efforts should be about in this and other legislation.

There is a more general point to be made about this and, as someone who was in the Department for Health and Social Security for six years, perhaps I may advise the Minister. The most important thing about some pensions legislation has not been the pre-legislative scrutiny; it has been the lack of post-legislative scrutiny—in other words, checking what has happened against what was intended to happen. The faults, difficulties and errors that occur can certainly come about because of a change of Government, as different Ministers from different parties come in, but one should not ignore the fact that they can come about also when a long-serving Government appoint a new Minister. Regardless of whether we are talking about a Conservative Government or a Labour Government, a new Minister is unlikely to think that the way of making his mark in his new department is to carry out effectively and brilliantly all the plans that were laid down by his predecessor. Ministerial politics do not work that way. I could give chapter and verse of my own experience in this and I am sure that the Minister and the noble Baroness, Lady Morgan of Drefelin, could give chapter and verse on the other side.

It is vital that we have a means of checking how any of the measures which are passed are carried out in practice. This is entirely a non-party political point. Without such action, we run the risk of repeating some of the errors made in the past. The department will always take its priorities from the Minister who is there at the time. That is no criticism of it, but it could lead us into error. Whether the proposition is accomplished by this amendment or by the later amendments on independent commissions, the Government should, for their own interest, look very seriously at it.

I thank noble Lords who have contributed to this debate, but I urge the noble Lord, Lord Fowler, not to keep going on about changes of Ministers at this juncture—it does not help one to concentrate.

I thank the noble Lord, Lord Skelmersdale, for moving the amendment, which raises the important issue of future pension credit take-up. Much has already been said about this subject both here and in another place; however, I think we can all agree that it would not have been appropriate to allow means-testing to spread as it would have done had we not acted. Our package of reforms will result in a reduction of the proportion of pensioners eligible for pension credit. This amendment seeks to require the Government to produce five-yearly reports on pension credit which will be considered by both Houses.

We have already set out our longer-term projections for pension credit entitlement under our reform proposals in the regulatory impact assessment which accompanies the Bill. There is a lot of information about how the projections have been derived. It is important that we monitor the extent of means-testing and the take-up and expenditure of pension credit, and such evaluation will be critical in ensuring that our reform project is on track. In that respect I can see the intentions behind this amendment. However, the amendment asks for a five-yearly report on information which is largely already produced regularly, usually annually. The DWP already publishes annual long-term estimates of benefit expenditure which includes pension credit. These estimates also feed into the Treasury report on long-term fiscal sustainability. Estimates of current and projected case loads are used to calculate these expenditure projections. We recently published these case-load projections and will continue to do so annually.

Estimates of current pension take-up rates are included in the annual take-up of income-related benefits report published under the independent national statistics guidelines. The number of pension credit recipients is published quarterly on the DWP website. So we already regularly produce a comprehensive set of pension credit data, and it is important that we continue to do so for planning and operational purposes. I can therefore see no reason for legislation to require information that is already in the public domain to be reproduced in a single report and published only every five years. That would be a backwards step from what we have now. For those reasons, I urge the noble Lord to withdraw the amendment.

I know that we are going to have a debate, as part of our consideration of the Bill, about the extent of means-testing and how that impacts on people’s propensity to save, and I look forward to that. Simply because people are on pension credit does not mean that they cannot get good returns from savings. That would not apply to absolutely everyone in that situation. The long-term projection shows that something like 6 per cent of people on pension credit would be on the guaranteed minimum amount, which is the 100 per cent withdrawal category.

A lot of information is already in the public domain and is published and produced regularly, and I am happy to commit the Government to producing regular updates of our longer-term projections of pension credit entitlement under reform, which fed into the RIA.

I am extremely grateful to my noble friend Lord Fowler for his speech in response to my amendment. I was somewhat surprised by the last point that the Minister made. At Question Time today, the third Question was about the Olympics; the noble Lord was clearly jumping fences before he had arrived at them, which is probably a bad habit, certainly for a hurdler. Perhaps he has never been a hurdler; I do not know.

It is all very well having little dribs and drabs of information scattered in miscellaneous reports, but that is no substitute for collating them. I accept the Minister’s point about having such a report every five years, but I do not accept the fact that it is not needed because of the plethora of information that is already available and which he has committed himself to continuing to make available. I will consider whether to go further with the amendment. In the mean time, I beg leave to withdraw it.

Amendment, by leave, withdrawn.

12: After Clause 3, insert the following new Clause—

“Report on contribution credits

The Secretary of State shall present a report annually to the House of Commons on—

(a) the number of carers in receipt of contribution credits;(b) the associated costs of contribution credits received by carers to the National Insurance Fund;(c) any proposals he may have for reviewing eligibility for contribution credits.”

The noble Lord said: I will be even briefer with this amendment, to give the noble Lord the opportunity to repeat the assurance that was made by his colleague in another place. It is clear that some tweaking is required to ensure that child benefit and the associated home responsibilities protection and contribution credits go to the correct parent.

In the past, most parents—usually the mother—collected their child benefit from their local post office, which meant that the money was instantly available for the child’s needs and was collected by the parent who handled the majority of the childcare. However, now that most benefits are paid by cheque or giro, child benefit is often paid to the parent whose name is at the head of the joint account, generally the one who is earning the main wage and who is not the main child carer. I was struck by the Minister in another place assuring the Committee that the Government’s intention is to allow the parent with care to benefit from child caring credits. Does that extend to child benefit? It jolly well ought to. I beg to move.

No, we did Amendment No. 11. The noble Lord spoke to Amendment No. 13 but he moved Amendment No. 12. Does the noble Lord want to move Amendment No. 12?

13: After Clause 3, insert the following new Clause—

“Allocation of child benefit to the relevant parent

If child benefit is paid into a joint account and allocated to a parent who did not wish to accrue home responsibilities protection or contribution credits, and the other parent wishes to have accrued home responsibilities protection or contribution credits, the Secretary of State must reallocate the qualifying years of home responsibilities protection or contribution credits, as the case may be, to the parent who wished to receive them.”

The noble Lord said: I have just spoken to this amendment; perhaps we can now have an answer to it. I beg to move.

I am very happy to respond to Amendment No. 13.

Noble Lords will already be aware that home responsibilities protection is currently awarded to a parent or person who is in receipt of child benefit, in order to protect pension entitlement. Currently, a person who is awarded child benefit can ask for it to be transferred to their partner. However, the individual must apply to transfer the child benefit award so that the transfer is completed within the first three months of a tax year—6 April to 6 July—to qualify for HRP for that year. As the noble Lord stressed, legislation does not allow the protection to be awarded retrospectively. In most cases, that operates successfully, but we are aware of a small number of cases in which a non-working parent misses out on HRP because their working partner receives child benefit. But for those affected—we have heard of only 80 appeals for 2005-06, which is a small number—the negative consequences on basic state pension entitlement can be severe.

With the proposed replacement of HRP with weekly credits from 2010, the situation could be exacerbated because, unlike HRP, credits will count positively to benefit entitlement. To mitigate the effects, we intend to allow the new contributions credits to be utilised by the partner or parent who actually needs them; for example, in cases where the person awarded child benefit also has contributions from earnings but their partner does not. That measure was announced at Second Reading in the other place by my honourable friend, James Purnell, Minister for Pensions Reform.

We made it clear in the delegated powers memorandum that the power to define those “engaged in caring” will be used to provide that important safeguarding measure for parents. It would apply to those reaching state pension age from 6 April 2010, the proposed start date of the coverage reforms. That safeguarding measure would allow HMRC, which administers child benefit, to deem that a parent is entitled to contributions credits throughout or for any part of a tax year in which they have a deficient contribution record if their partner, who was awarded child benefit, has a full contribution record for that year derived from paid or credited contributions and does not need the credits themselves.

However, we will also extend the existing HRP regulations to ensure that the non-working partner can benefit from HRP awarded prior to 2010. The onus will be on the individual to tell us, either before or following the calculation of someone’s state pension entitlement, that their partner should have been awarded child benefit. The customer will need to inform the Pension Service or HMRC that the wrong partner was allocated child benefit. They will also be required to provide supporting evidence, either before or following calculation of benefit entitlement, within the normal time limits. We will be working with HMRC to ensure that people are made aware of the new provision and how it may affect individuals’ pension entitlement.

While I am on my feet, and if I may be a little cheeky, I want to clarify a point about carers allowance. To be absolutely clear and put the question beyond doubt I should say that carers allowance, along with other social security benefits, can be paid only to people over 16. If I may slip back to another discussion, the Committee may be interested to know that the national carers strategy review has prioritised services for young carers and the setting of specific commitments to improve support for young carers. I thought that it would be helpful to the Committee to know that.

Given the information that I have provided, I hope that the noble Lord will feel able to withdraw the amendment.

I shall certainly withdraw it. I was extremely interested in the further information that the Minister gave me over and above what I gleaned from proceedings in another place. I shall study it with great interest. She appeared to say that, with the exception of a tiny minority, there was no problem in the reallocation of child benefit to the correct parent. I am delighted to hear that that is the case.

As regards the new arrangements for carers credit, one rather wonders whether that is likely to be of the same low order. As I said, I shall study very carefully what the Minister said and, if necessary, come back at a later stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 agreed to.

Clause 5 [Up-rating of basic pension etc. and standard minimum guarantee by reference to earnings]:

14: Clause 5, page 5, line 33, at end insert “including those claimed by British citizens abroad”

The noble Lord said: This amendment concerns a very serious and persistent injustice which affects about half a million people. The reason we do not hear more about it is that most, although not all of them, do not have votes in this country. None the less it is an injustice that we need to address and begin to right.

This amendment seeks to unfreeze the frozen pensions of British pensioners who have moved abroad. Many may have been there for 30 or 40 years and the real value of their pension has been eroded enormously in that time. We do not seek to bring them back to where they were but at least to stop the problem getting any worse by restoring the link to the pensions at the level they have now got down to. It is a modest amendment which none the less seeks to halt the decline and at least let those pensioners begin to share again in the rising pensions that their fellow pensioners in Britain enjoy.

There is also considerable injustice as between different overseas pensioners depending broadly on where they have moved to and whether the countries to which they have moved have reciprocal arrangements with Britain. In the case of the European Union, pensioners are automatically entitled under reciprocal arrangements for their pensions to be upgraded. I pay particular tribute to Mr John Markham, who is an indefatigable campaigner, especially on behalf of the Canadian pensioners but of pensioners in other countries too. My honourable friend David Laws and I have had meetings and engaged in considerable correspondence with him.

Now that we are moving to earnings linking, it is particularly unfair that the overseas pensioners in countries with these arrangements will see their pensions going up through earnings while under present arrangements the other half a million pensions will be frozen completely. I refer to the gap between those pensioners who live in America who get the uprating and those in Canada who do not. That gap will get even worse.

There is support from other parties for looking at the pensioners’ plight but so far, certainly in the debates in the Commons—we look forward to seeing what happens in this place—only the Liberal Democrat Benches are prepared to put forward any constructive proposal as opposed to just sounding sympathetic.

There are particular problems affecting a small number, which I also ask the Minister to look carefully at. I refer to the small number of pensioners in the British overseas territories such as the Falklands and countries such as the British Virgin Islands, the Cayman Islands, Montserrat, Pitcairn and St Helena—dependencies with very close ties to Britain—who get no uprating. As I said, about half a million people are affected. We believe that almost half of those, about 240,000, are in Australia, some 150,000 are in Canada, 46,000 in New Zealand and 37,000 in South Africa. Pensioners in a number of other countries, including Zimbabwe, do not get the uprating. That is the scale of the problem. The amendment seeks to unfreeze those pensions. We believe that that is affordable. I should like to give a flavour of how these people feel by reading from a frozen pensioner in Australia—if I can put it that way—who has just written to me. He writes:

“I am extremely grateful to you for your understanding of the plight [of] my fellow state pensioners … Many are now very old and have been battering their heads against the political brick wall set up in front of them for thirty years”.

He adds that he is planning to come back to Britain. I shall tell the Committee in a minute where he plans to move back to as I think that it is relevant. He writes that he and fellow pensioners in Australia have paid in for many years for,

“future indexed pensions, whether we liked it or not”,

and that the answers they receive from Ministers are an “insult to our intelligence”. He adds:

“My apologies. I meant just to say ‘Thank You’ but find my anger taking over. May Lord Jones recover his health”.

I am absolutely delighted to see that my noble friend, who made his maiden speech on this issue and is a worthy champion of these pensioners, is present. I look forward very much to hearing his speech. The letter continues:

“We have very few friends fighting for us! Thank you again for your support”.

This gentleman tells me that he plans to return shortly to Long Hanborough. Unless my Oxfordshire geography is very much mistaken, that is in David Cameron’s constituency. When the gentleman returns, we shall await with interest to see whether he is able to persuade David Cameron to show more sympathy than has been shown so far. I beg to move.

I, too, ask my noble friends on the Front Bench to consider this matter sympathetically. It is not the first time that this has been considered in this place. In the past the argument has always been advanced that the uprating applied only in countries where there were reciprocal arrangements. I received a letter from Mr John Markham, who has for some time lobbied on behalf of the Canadian Alliance of British Pensioners, in which he states that in the debate in the House of Commons the Minister stated that there was no need for a reciprocal agreement with the frozen territories in order to uprate/index pensions. If that is so, it seems to me that the argument about reciprocity disappears and that we are looking at two groups of pensioners, one of which has frozen pensions and the other of which does not; it has fully indexed pensions. That seems to me to be basically unfair and a situation which really should be rectified. Therefore, I hope that on this occasion we shall have a sympathetic hearing from the Front Bench.

I, too, strongly support the amendment. Over many years I have met people who represent pensioners abroad. It is very sad that so many people who feel quintessentially British consider that this country has given them such a raw deal, particularly those living in Canada who see that just over the border in the United States the uprated pension is available. More people from this country join their families in Australia and Canada than come to settle in Britain from some of the eastern European countries, where this rule would not apply. That is grossly unfair and it is a terrible indictment of this country when people who have spent their whole lives working and paying towards a pension have their pensions frozen in this way when they retire. They see it as a total injustice—and I agree with them. I strongly support the amendment.

I, too, strongly support the amendment. It is some years since I raised this issue on behalf of some residents in Canada, who found it difficult to understand why the border should determine whether or not they received a pension. After all, they do not make reciprocal agreements—they have no power to do so—but it is iniquitous to reduce their pension year by year by allowing inflation to erode it. I cannot see the justice of that. The only further answer that I received, apart from that relating to reciprocity—and I listened carefully to the noble Baroness, Lady Turner—was, “It is not one of our priorities”. I regret that that was not convincing to my correspondent in Canada. I hope that the Minister will say something better and more reassuring.

I support the amendment and wish that my noble friend and, indeed, the Minister would go further. I became aware of this issue when I represented Cheltenham in another place. The matter was first brought to my attention by a lady who wished to retire to Canada, where her only son lived. She found out quite late that her pension would be frozen if she went to Canada. She did not want to live with her son and his family, but she wanted to be nearby to see her grandchildren grow up. She did not wish to be dependent upon her relatives. She did not understand why her pension would be frozen and thought that there had been a mistake. She wrote to the then DSS and showed me the letters explaining the Government’s position that she had received in reply. Frankly, I did not believe it at the time. However, further correspondence ensued and confirmed that on the day she would leave the United Kingdom to go to Canada her pension would have been frozen.

She waited, expecting the then Government to change those rules, because she was convinced that it was a mistake, but nothing happened. She eventually said, “Look, I’m getting so old that I’ve got to go”. She was 70 when she went to Canada, and she did not think that she had long left to live. I am pleased to say that she is now 80, having spent 10 years in Canada, but her pension has diminished in real terms over that time. She sends me regular e-mails. Some of them are stroppy and one of them described a recent tornado in Toronto—so she also keeps her eye on climate change.

This issue has also been raised with me on my foreign travels, particularly by a vociferous Welsh butcher in Botswana. Perhaps I should declare an interest here, because my family owns a house in Botswana and it might be thought that I am pleading on my own behalf because I might retire to Botswana. I have no intention of doing so yet, but if reform of the House of Lords proceeds apace one never knows what might happen.

I and my noble friend Lord Oakeshott have mentioned Canada, where the pensioners are well organised. They do not understand why the pensions of people living down the road in the United States of America are uprated, but their own pensions are not. I am told that two of my former constituents who worked at GCHQ retired across the pond, one to Canada and the other to the United States. They had worked in the same departments at GCHQ, at the same grade and had presumably made the same national insurance contributions. One of them receives the uprated pension and the other does not. That is not justifiable.

Like my noble friend, I wanted to raise the issue of the tiny number of people in the British Overseas Territories. Answers to my Parliamentary Questions have indicated that the cost of getting rid of the frozen pensions issue for the relatively few people affected in the British Overseas Territories would be less than £0.5 million. In Treasury terms, that is loose change. I would like the Minister to look closely at that. We have heard about reciprocal agreements and I wonder how such an agreement might be negotiated with one of the British Overseas Territories. Presumably the Governor of St Helena or wherever would put on his feathered hat and say, “The people of St Helena require their pensions to be unfrozen”. He would then have to take off the hat, move to the other side of the table and have a discussion with himself. That would obviously be ludicrous, but it might be good material for a “Monty Python” sketch, if “Monty Python” were still producing new sketches.

I know that the Minister will tell us about the cost of unfreezing pensions. My noble friend’s amendment is relatively inexpensive. Certainly, the unfreezing of pensions in the British Overseas Territories would be inexpensive and affordable. Before we reach Report, will the Minister get his department to produce costings for unfreezing pensions for all the relevant territories? We know that the estimate is £420 million a year, which would escalate each year as pensions increased, but can he produce an estimate of the cost of unfreezing pensions for the over-80s, who are most in need, like my friend Mrs B? What about the over-75s? Perhaps the Minister would produce a list of the potential costs relating to each age group.

Now that the Minister, James Purnell, has said during Committee in the other place that it is not legally necessary to have a reciprocal arrangement before making such payments, presumably the Government can change their policy once they decide that it would be affordable to do so. I hope that the Minister in this House will provide some assurance that the Government are looking seriously at this issue.

We have had this debate just about every year since I re-involved myself in what I still, rather old-fashionedly, call social security matters. I am surprised that we are having that debate again in the context of this Bill. The noble Lord, Lord Oakeshott, will not be surprised to hear that our position on these Benches has not changed and I would be surprised if the position of government Ministers had changed, because I do not believe that it has.

This is my first run at this debate and I very much hope that I shall not be thought of as yet another brick in the political brick wall. However, I think that I shall disappoint the noble Lord who moved the amendment and those who spoke in support of it. John Markham seems to have been a very effective campaigner. He has put a great deal of work into this issue and I am sure that he has met my honourable friend, the Minister for Pension Reform.

I wish to clarify the intention behind the amendment. I have assumed that, as was the case regarding a similar amendment moved in another place, the noble Lord’s intention was for the amendment to cover all categories of state pension for those living abroad who are entitled to a UK state pension—in other words, to bring in those countries where the pension is currently frozen.

As I am sure noble Lords are aware, UK pensions can be claimed anywhere in the world, and that has been the case since 1955. The UK arrangement ensures that those who have worked in the UK and built up entitlement to the state pension here should get it, irrespective of how long they have lived in the UK or where they choose to reside in retirement, and we do not plan to change that.

We currently uprate state pensions abroad where we have a legal obligation or a reciprocal agreement to do so. During Second Reading, my noble friend outlined our policy for not uprating all UK pensions abroad and I will reiterate it today. It is a fact that we have limited resources and we need to prioritise our spending. Our main priority must be to pensioners living here: we want to ensure that they continue to see an improvement in their living standards. Of course, we must discharge our obligations to pensioners living in the European economic area and in countries with which we have a reciprocal agreement.

Perhaps I may put the uprating of the state pension abroad in context. As we have heard, just over 1 million pensioners living abroad currently receive a UK state pension at an annual cost of around £2 billion. Of those 1 million, around 530,000 live in countries where we do not uprate the state pension in payment. These pensions cost around £830 million a year. The cost of uprating the pensions of all those living abroad who are entitled to the UK state pension would be considerable. As my noble friend said at Second Reading, it would initially cost an extra £420 million per annum to unfreeze pensions in frozen-rate countries and pay them at the rate that they would have been paid had the individuals concerned remained in the UK. This figure would rise year on year.

Furthermore, if pensions in frozen-rate countries were to be fully unfrozen and backdated, with arrears paid so that each person with a frozen pension were treated as if he or she had never left the UK, it would cost in the region of £3 billion in 2007-08. I understand that that is not what we are talking about but I want to put it in context.

To uprate only the amount of pension currently in payment would cost an additional £30 million if uprated by prices or an additional £35 million if uprated by earnings. These costs would of course rise year on year, and this option would not end the inconsistencies that have been described today. The differential between the pensioners who moved abroad many years ago and those who moved recently would remain the same. For example, if we decided to uprate the pension of someone receiving a pension of, say, £40 by last September’s retail prices index, he would get £41.45. Those who moved last year and were receiving the full pension of £84.25 would receive the current full rate of £87.30. We would be open to exactly the same accusations as we face today if we adopted such an approach.

As I am sure the Committee is aware, an application on this issue is before the European Court of Human Rights. We expect to hear from the court later this summer. However, we are firmly of the view that it is right to prioritise our spending on UK pensioners, pensioners in the European economic area and those in countries with which we have a reciprocal agreement.

I am aware that the noble Lord, Lord Jones of Cheltenham, has tabled three Parliamentary Questions and that he has made a tremendous commitment to raising this issue and the concerns of overseas pensioners. I assure him that he will receive Answers to those Questions shortly. However, it should be noted that these territories do not form part of the United Kingdom, although they are under the sovereignty and formal control of the UK and have varying degrees of autonomy. With the exception of Gibraltar and the sovereign bases on Cyprus, the British Overseas Territories are not subject to EU law, but we have a reciprocal agreement with Bermuda to uprate UK state pensions.

A major consideration in deciding whether to enter into a reciprocal agreement is the extent to which the advantages to be gained outweigh the cost of negotiating and administering the agreement. If we were to enter into a reciprocal agreement with other overseas territories, we would have to ensure that they had a broadly equivalent pension scheme to enable true reciprocity to occur. Given the relatively small populations of some of the territories, that simply would not be practicable.

Additionally, we do not think it appropriate to single out the residents of British Overseas Territories with UK pensions as being any more deserving of the uprating provisions than those living in former colonies or Commonwealth countries. If we were to make an exception on the basis of a link or a former link with the UK, it would be extremely difficult to justify not doing the same for former colonies and Commonwealth countries where we do not currently apply the uprating provisions. Indeed, it would probably require us to uprate UK pensions globally.

The noble Lord, Lord Jones, asked for additional information regarding the potential costs of uprating specific territories. I do not have the details to hand but I am very happy to continue the dialogue on this issue in whatever way will be of help.

I appreciate that this is a disappointing response but I hope that the noble Lord, Lord Oakeshott, will consider withdrawing his amendment.

I thank all noble Lords who have spoken. Everyone has strongly supported the amendment apart from the Government and the Official Opposition Front Bench. If anything, the person who chided me slightly was my noble friend Lord Jones, who suggested, in a very moving speech, that I should have gone further, but we on these Benches can only go as far as we feel is affordable at this stage. However, at least we are putting forward a clear and, as the figures given by the Minister made clear, eminently affordable proposal. We think that £30 million or £35 million a year is a very modest start and it would recognise the injustice that exists.

The noble Baroness talked about people having worked and built up their entitlement to a pension in the UK. Is that not an entitlement to a pension in the same form as that received by people who have not left? An entitlement to a pension which is halved or more than halved over a period by inflation and by being frozen does not seem to be the same as an entitlement to a pension built up by working in the UK.

With regard to the points that my noble friend made about overseas territories, I honestly did not feel that the Minister addressed the fact that there is no one to negotiate a reciprocal agreement on behalf of these few hundred people. It is not right to compare the situation with that of former colonies from years ago, because those colonies now each have their own Government and, if they wished to negotiate a reciprocal arrangement, as some of them have done, they could do so. However, as the noble Baroness pointed out—I shall read her speech carefully—that would not be possible or appropriate in the case of the overseas territories. Therefore, these poor people are completely and utterly stuck and I think that, in a way, she made my noble friend’s case for him.

I hope that the noble Baroness will specifically undertake to give my noble friend the figures that he asked for on uprating the pensions of 80 and 75 year-olds. It struck me that it was perfectly reasonable to ask for that and I hope that she will be able to supply the information before Report.

As I said, we believe that we have made a very modest and affordable proposal. We shall certainly return to this matter at later stages of the Bill but, for now, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

15: Clause 5, page 5, line 39, leave out from “Where” to “shall” in line 41 and insert “the general level of earnings is greater at the end of the period under review than it was at the beginning of that period, the Secretary of State”

The noble Baroness said: My throat is dry and I hope that my voice will not put the Minister off being kinder to me. I shall speak also to Amendments Nos. 16, 18 and 19 and I thank the Minister for his courtesy in discussing with me his objections to my amendments. I am sorry to say that after much consideration, and with the utmost respect, I feel that he simply is not correct. I hope I shall be able to convince him of that.

Clause 5 is intended by the Government to restore the link between pensions and average earnings, a step that is supported by all sides of the Committee and by industry. This group of amendments in no way detracts from that objective. On the contrary, they are intended to strengthen the new system by ensuring that the necessary adjustments, from time to time, are calculated efficiently, impartially, accurately, transparently and, above all, without the possibility of any political interference, especially from the Treasury.

As the Committee is aware, in the course of several Bills in which I have been involved over the years, I have argued—sometimes successfully—against provisions that simply depend on the Government’s opinion or result, in effect, in government by ministerial decree. To that end, my amendments remove from the clause all elements that depend on the opinion of the Secretary of State and make the changes not only entirely fact-based, but indisputably fact-based. Amendment No. 15 removes from the clause the power of the Secretary of State to decide whether the general level of earnings has risen. It bases the operation of the whole of this important clause on the simple and patently obvious question of whether it has risen or not, rather than on a purely subjective test of whether it appears to the Secretary of State that it has or has not.

On Amendment No. 16, proposed new Section 150A(2) in Clause 5 quite rightly requires the Secretary of State to lay an order before Parliament upgrading the pension in accordance with the general level of earnings. However, new subsection (3) immediately contradicts that clear provision by excusing the Secretary of State from performing that duty. I ask Members of the Committee to note the words,

“if it appears to him that the amount of the increase would be inconsiderable”.

I repeat my objection to a decision about whether an increase is or is not inconsiderable being solely in the mind of the Secretary of State. In addition to that, by what standard is an increase to be regarded as inconsiderable? What is inconsiderable to a Secretary of State, earning perhaps £2,000 a week, may be substantial to someone subsisting on the state pension.

As I said at Second Reading, I have some slight sympathy with the Government over the problem they are trying to resolve. I am sure that they recall with considerable embarrassment the outcry over the derisory increase of 75p a week in 1999. However, there is nothing to prevent the Chancellor of the Exchequer granting a higher increase than the bare mathematically calculated minimum. More than that, the subsection contains another and, to my mind, fatal flaw. If the increase is so inconsiderable as to be missed, there is no unambiguous provision to make up the expense in a later year, as the clause provides for the increase to be based on a specific year or a review period. In other words, once it has gone, it has gone. I suspect that that is intentional because the proposed marginal note to new Section 150A refers to “Annual up-rating”. “Annual” would require an increase every year—the general level of earnings increases—and if it is not done in one year, I submit that it must be done in a later year.

Amendment No. 18 deals with that and removes any possible ambiguity. It fixes the increase that can be ignored at a maximum of 99p a week or, as the amendment says, less than £1 a week. It also enables the Secretary of State to increase that figure of £1 a week by order from time to time. The amendment also makes it clear beyond doubt that the ignored amount can be carried forward to a subsequent year unless the Chancellor should have generously decided to override the mathematical calculation and to allow a higher figure.

Amendment No. 19 simply provides for rounding off upwards instead of either up or down as the Bill proposes. Docking even a small sum a week may be trivial to most of us, but not to a pensioner who has to count every penny. I regard new subsection (4), as drafted, allowing rounding down, as the height of meanness and unworthy of a wealthy country.

Amendment No. 19 contains the whole nexus of my series of amendments. It removes from the Secretary of State the power by means of some formula dreamed up by him to calculate the increase in the general level of earnings. At the moment, the Bill provides for the Secretary of State to calculate the increase,

“in such manner as he thinks fit”.

He is not required to publish his methodology; or to use any recognised method; or to conform to any accepted independently published tables; or to be consistent from one year to another. This amendment leaves the sum to be calculated as a matter of course by the Office for National Statistics, an independent government agency. The Office for National Statistics publishes a monthly average earnings index and claims it is the key indicator of how earnings are growing. Why will the Government not bind themselves to accepting the findings of their own statisticians, but instead allow the Secretary of State to pluck some other figure out of the air if he is so minded? I hope that the Minister will explain.

There is a precedent for using an independent table or index to determine the level of increase in earnings. That is to be found in the Government’s Employment Relations Act 1999 where, for the purposes of Section 34, the figure is calculated by reference to the retail prices index also published by the Office for National Statistics. The Government are content to rely on an Office for National Statistics index for the 1999 Act, so the index of the general level of earnings, which the same agency produces, should apply to the present Bill.

That reference brings me to the precedent on which the Minister, who told me in a meeting I had with him, he intends to rely. He calls into aid the Social Security Administration Act 1992 which contains the identical formula as is proposed in this Bill—ministerial discretion and “inconsiderable” increase et al. I now have the greatest respect for parliamentary draftsmen, but in this instance they have made a serious mistake by using the 1992 Act rather than the Government’s more recent 1999 Act.

I did not have the pleasure or privilege of being a Member of your Lordships' House when the 1992 Act was passed, otherwise I would have argued like mad with my colleagues against the extent of the ministerial discretion that was granted at that time. Much more importantly, in 1992 the Office for National Statistics did not exist in its present form and there was no index of average earnings. In 1999, it did exist and, quite rightly, the Government utilised the authoritative retail prices index that it produces. There is a major inconsistency between two of the Government’s own pieces of legislation, the 1999 Act and this Bill. More than that, if under Clause 5 the Government were to produce any lesser figure than the Office for National Statistics’ figure, I can confidently predict now that the Secretary of State will find himself in court before anyone can say “judicial review”. It will be of no use, if that is his intention, for the Minister to reassure your Lordships that, of course, the Secretary of State will take the Office for National Statistics’ calculations into account. The Minister suggested in discussion that the wide ministerial discretion will allow for flexibility. Flexibility is not what is required from the Government in this case. What is needed is consistency between the two Bills.

Accepting my amendment would also restore some measure of confidence. We did not discuss that important fact when we met. The situation today is different. People have lost confidence in pensions. There have been too many sad pension stories and the result is that we do not want to leave matters to ministerial discretion—to what the Minister thinks and does not think. I do not want to make a political point on this, but the position of pensions has been severely battered in recent years. There is no reason why—except for obstinately refusing to acknowledge that a drafting mistake has been made—the correct formula should not be enshrined in the Bill and therefore automatically applied.

While it is not for me, as a very humble Back-Bencher, to propose an amendment to an Act passed by Parliament when my party was in government, I believe that the Minister should take the opportunity to consider bringing the 1992 Act into line with the 1999 Act and should not take a step backwards by making us revert to an obsolete, 15 year-old precedent.

Clause 5 is a key provision in the Bill. Its objectives are not disputed or contentious. However, the methodology is totally flawed and leaves its implementation entirely at the discretion of the Secretary of State. My amendment puts the implementation on an open, transparent basis. The Minister has to think that that is sensible. I beg to move.

I added my name to my noble friend’s amendment because I support it. The Bill gives the Secretary of State enormous control over how the uprating formula is to be calculated. Almost my first words today related to precedents, as the noble Lord, Lord Oakeshott, will remember. Precedents may be good, bad or ugly. I understand that there is a precedent for this wording in the Social Security Administration Act 1992 and that the legislation governing the retail prices index and pension credit uses this wording. However, as my noble friend said, there has recently been a new precedent in the Employment Relations Act 1999, which uses the wording that my noble friend’s amendment lays out. I do not see why the benefits of being more precise in primary legislation, which is the fact in that Act, should not apply to this Bill too.

I believe that the Government’s refusal to lay out the formulas and amounts for uprating is unnecessarily hindering attempts to restore trust in pensions and in the Government’s commitment to providing a more generous pension by uprating in line with earnings rather than prices. There are many ways in which the Secretary of State could use the current drafting to uprate pensions that, although technically correct, would be considered unduly stingy by most people. For example, questions of whether bonuses should be included or the wages of only a section of society, such as the private sector, will have a significant impact on the resulting numbers.

The Minister will no doubt assure us that he intends to follow this or a similar formula anyway. However, if that is the case, why will he not consider putting a formula, such as the one in my noble friend’s amendment, in the Bill? I am sure that the magic word “flexibility” is about to spring from the Minister’s lips, but it is surely not appropriate in this situation, where numerous small changes to the method for calculating a pension will cause considerably more confusion and distrust than already exists. More importantly, it cannot be appropriate for two pieces of legislation that purport to do exactly the same thing to have totally different drafting.

I would back the noble Baroness, Lady Miller, against a sore throat any time. We on these Benches support her amendments and I propose to speak mostly to Amendment No. 17, which is tabled in my name and that of my noble friend Lord Kirkwood and is similar in content.

It is a very simple amendment that states that the level of prices means the retail prices index and the level of earnings means the average earnings index. These are simple, straightforward, well understood definitions, and we see no reason for leaving wriggle room. The Government—indeed, all of us—claim that simplicity and clarity should be the watchwords in pensions, and this is a simple example of where things can be simple.

I am struck by the evidence of David Yeandle of the EEF, who is a practical, experienced and persistent lobbyist on pensions for his members, who are mainly smaller and medium-sized businesses. He says that they are disappointed that, as drafted, the clause gives the Secretary of State almost complete carte blanche to determine the way in which the uprating is undertaken. New subsection (8) in Clause 5 states that,

“the Secretary of State shall estimate the general level of earnings in such manner as he thinks fit”,

as we have heard. Indeed, the Explanatory Notes let the cat out of the bag, stating:

“In practice this means the Secretary of State will be able to decide which measure or index of earnings growth shall be used for the purposes of earnings uprating”.

The EEF considers that the current wording of the clause gives too much flexibility to the Secretary of State when implementing this important element of the package of pensions reform.

I cannot see the reason for it. When people are planning their pensions and their future investments, it is very important that they know where they stand. The point of substance that the Minister, James Purnell, made in another place when he was talking about flexibility was that if the Government got into a situation, as has happened under previous Governments, where inflation reached 10 or 12 per cent, we would not want them to be tied in to a position that would make it harder to put that right; that is, he would want to cut again, effectively ending the link with earnings. That is very serious. I was a special adviser to Roy Jenkins in a Government in the 1970s when inflation got to 27 per cent, so I have a rather longer memory than James Purnell. However, with inflation at 10 or 12 per cent, I would not want pensioners to have their link taken away. Why should they be the ones to suffer? It is more than flexibility. If I read this right, the Government are genuinely saying, “We’re restoring the earnings link, but only for so long as it suits us”. That is very serious, and I ask the Minister to clarify the position and respond to the clear feeling of the Committee that we should know exactly where we stand, and so should pensioners.

I support the amendment. During my Second Reading speech, I drew attention to the importance of the inflation rate and I asked the Minister a few questions, which he did not really address in his summing up. It is clearly important that earnings rather than prices are the basis on which the changes are to take place. I, too, had a letter from David Yeandle, and I agree with the points that he made. I hope that a little more information on these points will come from the Minister because whatever the rate of inflation—and we are a bit worried about it at the moment—it will clearly make a huge difference to whatever decision we make about any aspect of pensions.

I thank all noble Lords who have spoken in this debate. I say to the noble Baroness, Lady Miller, that I am sorry that her voice is troubling her, but she should be assured that it did not detract from the clarity with which she moved her amendment, even though it did not help me reach the conclusion that I should accept it.

Clause 5 delivers our commitment to uprate the basic state pension and the pension credit standard minimum guarantee in line with increases in earnings. The arrangements for earnings uprating are a fundamental element of our pensions reform package, and I am grateful to noble Lords and the noble Baroness for giving the Committee the opportunity to discuss this matter.

Earnings uprating is one of the big prizes in our package of reforms. We are determined to ensure that future generations of pensioners continue to share fairly in the rising prosperity of the nation, building on the progress we have already made in tackling pensioner poverty. The group covers arrangements that form part of the uprating process; namely, the measure of earnings growth to be used and the practices for paying and rounding increases in the relevant amounts.

Amendments Nos. 15 and 16 and 18 and 19, tabled by the noble Baroness, Lady Miller, and the noble Lord, Lord Skelmersdale, work together to remove the degree of flexibility which the Bill gives to the Secretary of State. Amendment No. 15 would remove the need for the Secretary of State to exercise judgment regarding whether earnings had increased, and, in conjunction with the other amendments in this group, would place unnecessary restrictions on the Secretary of State.

There is nothing new about benefit uprating. The first legislation which set out a process for an annual uprating exercise, and enabled rates to be increased by an order subject to parliamentary approval, dates back to the early 1970s. Before then, a separate Bill was needed each time the rates were increased. Although there have been some changes since then—for example, income-related benefits were brought into the arrangements—the process has changed very little.

Just because we have done something in a particular way for many years, it is not the case that we must continue to do so. The major reforms in this Bill give the lie to that. However, in this case, the uprating process has served us well and has stood the test of time. Indeed, we will continue to use it for the majority of benefits which will still be uprated in line with prices. The Bill’s provisions ensure that the same process applies to earnings-linked and prices-linked uprating.

I appreciate that the noble Baroness, Lady Miller, has concerns about the apparent flexibility which the Secretary of State is given, and would therefore prefer to see every element of the process specified very precisely. As things stand, however, Secretaries of State have to act reasonably when they consider questions such as whether earnings, or, for that matter, prices, have increased. She noted that if the Secretary of State acted in an arbitrary way, the process of judicial review would be readily available. In practice, as noble Lords will know, the Government use published indices produced by the Office for National Statistics.

That brings me to Amendment No. 19, which in part seeks to specify a precise index for the measurement of earnings. At Second Reading, the noble Baroness, Lady Miller, set out clearly her concerns about the flexibility which the uprating provisions give the Secretary of State. Accordingly, the first part of Amendment No. 19 specifies a precise earnings growth measure to be used for uprating—the average earnings index, including bonuses, for the whole economy for September.

At this point, perhaps we should discuss Amendment No. 17, tabled by the noble Lord, Lord Oakeshott, as it also seeks to define in the Bill the measure to be used to uprate pension amounts as the average earnings index. However, I note that this amendment does not specify which average earnings index should be used—there are a number of them.

I should point out that the amendment also specifies that in the case of prices it shall be the retail prices index. It may be that the noble Lord included this reference to support the approach of uprating by the higher of prices or earnings, but I do not think this approach is necessary. As I have already explained, there is generally nothing new about the uprating provisions in this Bill. We wanted the provisions in Clause 5 to be consistent with those that presently govern the uprating of the basic state pension for prices. The current provisions have been in place for many years and work very well. We see no reason why the earnings uprating provisions should not follow suit.

Therefore, just as current arrangements give the Secretary of State discretion over the measurement of prices, the new provisions give the Secretary of State discretion over the measurement of earnings.

I mentioned earlier that the Secretary of State relies on published indices produced by the Office for National Statistics. As all noble Lords are aware, the average earnings index has been used to uprate the standard minimum guarantee since 2003. In fact we use the headline three-month average figure to July for the whole economy, seasonally adjusted, including bonuses. A provisional rate is published in September, but we tend to use the October revision. Our current intention is to use this for earnings-linked uprating in the future.

I note that Amendment No. 19 specifies the September average earnings index. Using the three-month average to September would severely affect our timings, as the provisional rate for September is not published until November. That timescale would not leave us with enough time to make the necessary system and legislative changes for the Secretary of State to meet the requirements to bring the new rates into force at the prescribed time. So, while the Government do and will rely on published ONS measures, we do not think that it would be wise or helpful to specify in primary legislation a specific index to be used for the purposes of uprating pension amounts.

Flexibility needs to be maintained, as it is not unknown for the publication of particular indices to be suspended, although it is some years since that last happened. That happened when the ONS suspended publication of the average earnings index between November 1998 and March 1999. If history repeats itself and the legislation specifies that particular index, these benefits could not be increased. In practice, of course, that would be unthinkable. The very flexibility this amendment seeks to remove is vital in enabling the Secretary of State to make alternative arrangements.

I know from Second Reading that the noble Baroness, Lady Miller, is aware of the provisions of Section 34 of the Employment Relations Act. Section 34 allows for the prescribed limits on payments and awards under employment legislation, such as unfair dismissal and redundancy payments, to be varied in line with the retail prices index. However, there are some important differences between increasing, or, indeed, reducing, the amount that employers are obliged to pay under that Act and uprating benefits. For example, under Section 34, payments can be increased or reduced only by the same percentage change in the retail prices index. Like Section 34, Amendment No. 19 dictates that pensioner benefits can be increased only by the same percentage as the amount of the increase in the relevant earnings index. So, in the scenario where the Secretary of State wanted to increase pensioner benefits by more than the increase in the relevant index, the effect of the amendment would be to tie his hands and prevent him doing so.

Just as the current legislation gives discretion to uprate by more than prices, the new earnings uprating provisions give discretion to uprate by more than earnings. The Government have made use of this flexibility in recent years and uprated the basic state pension by more than the retail prices index on a number of occasions, meaning that between 1997 and April 2007 pensioners have seen a 7 per cent real terms increase in their basic state pension. I am sure noble Lords will agree that we would not want to prevent the Secretary of State increasing the basic state pension by more than earnings if he wished to do so. That is precisely what Amendment No. 19 would do—restrict his room for manoeuvre. Clause 5 provides certainty. We are legislating for our commitment on earnings uprating by replicating tried and tested provisions.

The final section of Amendment No. 19 makes changes to the current well established arrangements which allow the Secretary of State to round up or down. The usual convention is to round to the nearest 5p. The amendment provides that increases are to be rounded to the nearest 10p. The provisions of the final section of Amendment No. 19 are replicated in Amendment No. 18.

At present, the Secretary of State is required to review pension levels each year to see whether they have retained their value in relation to the general level of prices. If they have not, he is required to increase them. Legislation provides that this increase may be rounded up or down,

“to such extent as he thinks appropriate”.

Although the legislation says that, in practice, the usual convention is to round up or down to the nearest 5p.

The provisions in new Section 150A of the Social Security Administration Act 1992 inserted by subsection (1) of Clause 5 broadly mirror the provisions of existing Section 150. Section 150 gives the Secretary of State discretion to round up or down, and the rounding provisions at Clause 5 merely replicate current arrangements. Applying percentage increases to benefit rates rarely produces exact cash amounts, so rounding is a well established procedure.

I should point out that pensioners do not necessarily lose out or gain as a result of rounding. Implementing the provisions means that in some years the rounding will result in the rounded figure being slightly higher than the calculated figure, while in other years the rounded figure will be slightly lower.

As I outlined earlier, if the amendments were accepted, increases in pension amounts would be rounded up to the nearest 10p. That might sound fairly inconsequential, but a significant cost would be associated with that. It would mean that even small increases, including those of less than 1p, would have to be rounded up to 10p. Bearing in mind that this would be paid for 52 weeks a year to some 15 million pensioners, the costs would soon escalate. If we consider that in subsequent years the new amounts themselves would be earnings-uprated and subject to further rounding up, it is easy to see how costs would be compounded over time. Carried forward over four decades, we estimate that just one such occasion could add more than £1 billion to the annual pensions bill by 2050. I am sure that the Committee will agree that that is a considerable amount. To recap, the rounding provisions are not new. The current rule has been successfully applied for many years, and we have no reason to think that it will be any different for the rounding provisions in Clause 5.

Amendment No. 16 would alter the provisions for not uprating where the increase is deemed to be inconsiderable. I have said previously that we intend the uprating process to follow the same pattern that we have used for price-uprating. It has been tried and tested. One of the longstanding features of the existing process is that, where the increase in a particular amount would be inconsiderable, it does not have to be paid. The amendment sets out in fairly precise terms the level of increase deemed inconsiderable or too low to pay. Such inconsiderable amounts would, if the amendment were carried, be carried forward to the following uprating exercise. The amendment puts that figure at anything under £1. As benefit rates are expressed weekly, that could amount to around £50 a year.

I cannot say with any certainty what increase the Secretary of State would deem inconsiderable, as I am not aware of any occasion in the last 30 years on which an amount has not been increased on that basis. I think that I am on safe ground in saying that it would be considerably less than the £1 that this amendment stipulates. I have found examples of some individual benefit components that have increased, in line with prices, by as little as 15p or 20p after the increase had been rounded to the nearest 5p. Those increases were paid, so were clearly not viewed as inconsiderable. In reality, this rule would be likely to bite only if inflation, or the annual increase in earnings, were to fall very close to zero.

Finally, I should point out a further important difference between the uprating provisions in the Bill and those of Section 34 of the Employment Relations Act. Under Section 34, payments are increased by statutory instrument using the negative procedure. Crucially, the annual benefit uprating order is subject to far closer parliamentary scrutiny and can be made only following a resolution of each House; so if Parliament ever considered that the Secretary of State had misused this flexibility, the solution would be in our hands.

The noble Lord, Lord Oakeshott, asked me to comment on what my noble friend James Purnell said in another place. I do not know the precise context to which the noble Lord referred, but he may have been commenting on whether the uprating should be higher than prices and earnings. I think he was focusing on what would happen if rampant inflation outstripped earnings, although that has not occurred under the financial stewardship of this Government. If it did, there would be some serious issues for the economy to address. I believe that that is the context, but if it is not, I will certainly write to the noble Lord.

I hope that my explanation will assure noble Lords that there is nothing sinister about our proposals for earnings uprating, and I urge the noble Baroness to withdraw the amendment.

I thank the Minister for his very detailed answer. It was so detailed that I shall need to read it very carefully to ensure that I understood every nuance. I also thank the noble Lord, Lord Oakeshott, for his support. Interestingly, his amendment is very similar; it simply comes at the matter from a different angle. At this stage, because I have not read what the Minister has said, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 16 not moved.]

17: Clause 5, page 6, line 3, at end insert—

“(3A) The general level of prices shall be defined as the Retail Prices Index.(3B) The general level of earnings shall be defined as the Average Earnings Index.”

The noble Lord said: On Amendment No. 15, I apologise to the Minister if I was wrong about what James Purnell said. I will re-read the relevant quotation and see if I was indeed wrong. On his point about the average earnings index, economists and those in the City generally use the term “average earnings index” for exactly the index that he cited; the headline average earnings index, including bonuses. That is the long definition of the average earnings index, so that is precisely the index that we have in mind. I will be quite happy if he wants to put the longer definition in the Bill, but the key thing is that it should be clear and should not be subject to ministerial manipulation.

On the fair point that he makes about the problems with the compilation of the average earnings index between 1998 and 1999, which could in theory arise with any index, the answer is not to say that we will let the Minister decide. The way in which to deal with that temporary problem is to let the National Statistician estimate an amount on the best basis that they can, because they will be in the best position to do so. That is the answer to that, although I will certainly return to the matter on Report.

[Amendment No. 17 not moved.]

[Amendments Nos. 18 and 19 not moved.]

20: Clause 5, page 6, line 40, at end insert—

“150B Annual up-rating of earnings disregards of state pension credit

(1) The earnings disregards shall be raised to—

(a) £20 for a single person’s earnings;(b) £30 for the earnings of a couple; and(c) £40 where a single person or one or more of a couple—(i) qualifies for one or more of the following—(a) adult disability premium (whether or not the higher pensioner premium is applicable);(b) carer’s premium or carer’s allowance;(c) higher pensioner premium;(d) long-term employment support allowance;(e) severe disablement allowance;(f) attendance allowance;(g) disability living allowance;(h) war pensioner’s mobility supplement;(i) disability or severe disability elements of working tax credit; or(ii) is a single parent;(iii) is or are registered blind;(iv) is or are a part-time firefighter;(v) is or are an auxiliary coastguard on coast rescue activities;(vi) helps or help to operate or launch a lifeboat; or(vii) is or are part of any territorial or reserve force.(2) The Secretary of State shall, before the start of the first tax year after the coming into force of subsection (1) above and before every tax year thereafter, review the amount of the earnings disregards in order to determine whether they have retained their value in relation to the general level of earnings obtaining in Great Britain.

(3) Where it appears to the Secretary of State that the general level of earnings is greater at the end of the period under review than it was at the beginning of that period, he shall lay before Parliament the draft of an order which increases the amounts referred to in subsection (1) above by a percentage not less than the percentage by which the general level of earnings is greater at the end of the period than it was at the beginning.

(4) The Secretary of State may, in providing for an increase in pursuance of subsection (3) above, adjust the amount of the increase so as to round the sum in question up or down as he thinks appropriate.

(5) If a draft order laid before Parliament under this section is approved by a resolution of each House, the Secretary of State shall make the order in the form of the draft.

(6) An order under this section shall be framed so as to bring the increase in question into force in the week beginning with the first Monday in the tax year following that in which the order is made.

(7) For the purposes of any review under subsection (1) above, the Secretary of State shall estimate the general level of earnings in such manner as he thinks fit.”

The noble Baroness said: In moving Amendment No. 20, I shall also speak to Amendment No. 25. On Amendment No. 20, whatever we do when we debate social security uprating, which we do every year, we almost invariably fail to uprate disregards. I am hoping for support here from the noble Lord, Lord Kirkwood, who I know has been involved in these debates in the other place on many an occasion. Thirty years ago, the disregard for a single person in retirement was £4. Twenty years ago it was £5—£10 for a couple—and it has not changed since. It is worth less than an hour’s work a week at the minimum wage for a single person, or an hour and a half or so for a couple if one of them is working.

Amendment No. 20 would raise the level of disregard so that a woman in her 60s could, if she chose, clean for three hours a week, or a man could do two hours or so a week of gardening—I am sorry; these are very gendered examples—without endangering their pension credit. That is probably good for their health and for socialising with other people, as it gets them out of the house; it is certainly good for their income. I would argue that this is in effect a nil-cost amendment. Either people do not do the work because of the fear that it may jeopardise their benefits, or they do it for cash in hand and do not declare it, thus entering the territory of fraud. What they do not do is earn the money—we are talking about modest sums here—declare it, and then see it knocked off their benefit. Why would they bother? The amendment would allow us to revisit disregard levels. The Bill would remain unchanged, so the amendment would have nil cost. No additional benefit money would be paid out, and no one would have any benefit knocked off because they were declaring it, so far as I am aware. We would have helped to take some potential for fraud out of the system, which is a good thing, and helped modestly to improve the financial circumstances of retired people.

Amendment No. 20 suggests a very modest disregard on earnings. Amendment No. 25 seeks to address a related issue—the disregard on capital. At the moment, one can trivially commute a small private pension worth up to £15,000 in total, which I calculate—perhaps the noble Lord, Lord Oakeshott, can help me here—would buy an annuity of less than £1,000. Pension providers would not be particularly keen to handle such small sums. In any case, it may be the only sum of capital that many people experience in their working lives, and it would allow them to get work done on the house, or whatever, when they come to retire. If they claim pension credit, the first £6,000 of any such sum is free. Thereafter, a notional income of £1 for every £500 is attached to the capital, which in effect wipes out the lump sum at around £12,000 to £15,000. The same notional rules apply to housing benefit and council tax benefit, but there we also have a very belt-and-braces approach—a capital limit of £16,000. This means that anyone with a small personal pension—say, an older woman who in years to come fails to opt out of a personal account—comes below the trivial commutation rules and can then find her pension is deducted almost pound for pound against income-related benefits, particularly if she is a tenant. So she should never have saved at all. She would effectively have been, through inertia, mis-sold a personal account pension because she did what we wanted her to do and did not have sufficiently detailed financial advice to discourage her from doing it.

To avoid these problems, we need some headspace to make small pensions worth having. It is curious that we have quite stringent capital rules for private pensions. You can commute only up to £15,000 and only the first £6,000 is disregarded. Thereafter, you have a quite steep taper. We disregard it with quite tough rules for private pensions, but the same stringency does not apply to the basic state pension. If someone with a full basic state pension record carries on working, drawing the BSP may be deferred for, say, five years. At that point, a person can either take an enhanced basic state pension, worth about 10.7 per cent a year for each year, or have it rolled up into a lump sum which could be worth up to £40,000. I was party to this and I am delighted that we did it: we introduced the lump sum alternative precisely so that people who have never had the chance to accumulate capital might, as they go into retirement, have a lump sum allowing them to fix the roof, replace capital goods and so on, which would be great.

Income from a deferred basic state pension is set against pension credit and other income-related benefits, and probably will cost most of a person’s income-related benefits. It is a bad buy for most people who might otherwise be on benefits, just as with private pensions. But here is the anomaly: if a person takes the money as a lump sum, it is disregarded entirely, but it is counted if taken as income. Effectively, there is a £40,000 capital disregard if your pension sum comes from a basic state pension, but only a £6,000 capital disregard if it comes from a stakeholder or personal account.

I do not want to take that lump sum disregard away from the basic state pension: I want to extend it to small private pensions, so that just as the BSP disregard encourages people to have extended working lives, so the private pension disregard could and should encourage people to extend their savings. Ultimately, I would like to see those capital disregards equalised and not taken into account for income-related benefits. Given the anomalies that we currently have, I hope that the Minister will agree. I beg to move.

Provoked by the noble Baroness, I am happily willing to support these amendments. The noble Baroness is right. I spent a lot of time in the previous two Parliaments in another place looking at the whole area of disregards, not merely those targeted at and connected with pension credit. However, pension credit disregards have some specific problems. Apart from anything else, the upratings that the noble Baroness suggests would be not as expensive as if disregards were to be addressed across the whole system.

The thing that the Government always slip out from under is the charge as to why earnings disregards have never been uprated since 1988. When income support came in the IS disregard was £4. All this time later, we are talking about £5. It seems strange that there is no recognition of the fact that over that period of time, leaving the amount of disregard at that level is bound to have an effect on people’s incentives to go out and get a little job, particularly for those of the age group to whom this amendment relates. Ministers have discretion on this. It is understood that there is no statutory requirement. This amendment seeks to do that, which is right. The Committee would be well advised to give it serious consideration in the context of this debate right now. If there is no willingness to give statutory uprating, why on Earth are the Government not able from time to time to use discretion unless the policy, unstated, is to let it wither on the vine?

That is strange for a number of reasons, including equity. If the Government are trying to encourage people to work for longer, certainly that would work with the grain of that important new policy, which the House would support because it is an integral part of the rest of this Bill. If we are to extend the age at which people claim their basic state pension, try to get people working and into the labour market, and be more active, it would be much more realistic to accept something along the lines of this amendment to promote that method of proceeding.

I absolutely agree with the noble Baroness: people who do some of this work do not declare it. They would be stone mad if they did because it would prejudice their entitlement to benefits, which would get looked at again. It is a risk. No one defends the non-reporting of benefits, but it is a natural reaction if you are doing a little part-time job, involving a little bit of work helping someone in the village or down the road. I am sure that a big element of the grey economy comes from that direction simply because these limits have not been lifted for so long.

We are trying to get more people into work. The Government have quite ambitious targets for the working-age population to get more people into work. It would not be competent to do this at length in this debate, but the whole area of disregards needs to be attended to in the fullness of time. On the face of it, going from £5 to £20 in one go looks like quite an ambitious jump. However, if you valorised the £4 from 1988 up to 2007, you probably would not get far away from the figures that the noble Baroness suggests in this amendment.

There is equity in this subject. I am sure that both Houses of Parliament should have turned to it before now. In the context of a pension credit claim and disregard, it is particularly apposite to this Bill and debate. I cannot see for the life of me why the Government do not at least say, “Well, we will do one of two things. Either we will be sensible and use some discretion from time to time, and every three or five years give this a boost to keep it current and in kilter with what it was in 1988, or take the offer made in this amendment”, which I support. There is a lot of logic to it. It is better because it puts a duty on Ministers, in a statutory framework with which we are all familiar for all other benefits of this kind, to uprate it as part and parcel of the annual statutory uprating process. This amendment is irresistible and I would take an awful lot of persuading that the Government do not need to do something about this urgently.

I am grateful again to my noble friend Lady Hollis for tabling an amendment which enables us to discuss an important issue. Much has already been said about pension credit and the proportion of pensioners who may be subject to means-testing in the future, but this brings an added dimension by introducing to the debate the current treatment of elements of income and capital within pension credit.

I shall respond first to the amendment relating to earnings disregards. It seeks to increase the amount of the earnings disregards that apply and would require the Secretary of State to review and uprate them in line with earnings on an annual basis thereafter. As my noble friend is aware, we recognise that some people nominally “in retirement” may wish to take up work and keep in touch with the job market, so a small amount of earnings are disregarded within pension credit. We disregard £5 a week for most people and £10 for couples, although in certain circumstances this can be £20.

My noble friend suggests that these levels should be increased. However, pension credit is not intended for people who do substantial amounts of work. While we fully support the principle of working and recognise that for many “in retirement” this is a positive step, pension credit is primarily a safety net entitlement. Pension credit provides cash help for the poorest pensioners, targeting money to where it is most needed. In doing so, we look at people’s income from all sources, whether employment, retirement provision, capital or savings, and provide a top-up to the level of the standard minimum guarantee—£119.05 a week, and £181.70 for couples. This may be higher if people are caring, have a severe disability or certain housing costs.

As the Government have always made clear, the key priority is to ensure that everyone can be sure of a decent and secure income in retirement with a relatively generous minimum level of income guarantee, and this is what the guarantee credit element of pension credit provides. In addition, the savings credit rewards those aged over 65 with earnings, income or savings. Furthermore, pension credit is more generous than its predecessor as it does not have a limit on the number of hours someone can work and still claim pension credit. While I fully understand and appreciate what my noble friend is trying to do here, I should point out that raising the level of the disregards is likely to attract a considerable cost, particularly as this would have a knock-on effect for housing benefit and council tax benefit for pensioners. We would need to change those rules so that some people do not lose out as a result of these changes.

I turn to Amendment No. 25 and its proposals with regard to trivially commuted lump sums. The amendment would introduce a new capital disregard in pension credit, housing benefit and council tax benefit for capital derived from trivially commuting a personal pension, an occupational pension, a stakeholder pension or a personal account for people aged 60 or over. The effect would be that such capital up to the current trivial commutation limit of £16,000 would be completely ignored when establishing entitlement to a means-tested benefit, and as it stands, this would be in addition to the current capital disregards that operate within these benefits.

I shall start by setting out the current position. We already have generous capital rules for pensioners within the means-tested benefits. The pension credit rules are significantly more generous than those of its predecessor, the minimum income guarantee, which excluded pensioners with capital or savings in excess of £12,000. Unlike other means-tested provision, pension credit has no upper capital limit. We ignore the first £6,000 of capital, or £10,000 for those in care homes. This means that the vast majority of pension credit recipients, some 85 per cent who currently have capital below £6,000, do not have any notional income taken into account. For those with capital above £6,000, we assume income at a rate of £1 per £500 or part thereof, half the assumed rate of income under the minimum income guarantee. Indeed, my noble friend Lady Hollis outlined that.

For the most part, housing benefit and council tax benefit rules for those over 60 are the same as the pension credit rules. However, they vary in one significant way—for housing benefit and council tax benefit, there is an upper capital limit of £16,000. This means that anyone with capital in excess of that sum would not be entitled to housing benefit or council tax benefit unless they get the guarantee credit.

As I said a moment ago, the Government have always made it clear that a key priority has been to ensure that everyone can be sure of a decent and secure income in retirement, and these benefits play a key part in the Government’s strategy to tackle pensioner poverty. We believe that the current structure of the benefits is successful in targeting money for those vulnerable and poorest pensioners who need it most, while at the same time rewarding those who have made modest provision for their retirement. As a result of our measures to tackle poverty, we have lifted 1 million pensioners out of relative poverty.

Looking to the future, we anticipate a different picture. Our reforms to the state pension and state second pension will mean that more people will receive state pensions which will lift them well above the means-tested minimum at the point of retirement. By 2050 we expect only 6 per cent of the pensioner population to be in receipt of guarantee credit only, and around half of those will have additional needs. Further, this estimate does not take account of the impact of personal accounts, so the proportion could be even less.

In terms of the trivial commutation of small pension pots, very little is currently known about either the number or the characteristics of people opting trivially to commute their pension. It is therefore very difficult to determine how people might behave in the future. Any attempt to understand the costs associated with the implementation of this amendment is somewhat speculative because of the difficulties in predicting how many people in the future will be eligible for, and then actually choose, trivially commuting their pension pots. As it stands, my noble friend’s amendment raises a number of questions and issues that need careful thought and consideration. Aside from the cost issue, the amendment would create very different outcomes depending on the choices people make about saving. We need to be wary of inadvertently creating perverse incentives to save less. It would also introduce unnecessary complexity into the claims process for pension credit, housing benefit and council tax benefit based on the need to authenticate the origin of a portion of someone’s capital.

Clearly these issues need further thought. While I share my noble friend’s concern to ensure that people with only limited funds to invest in pension schemes are not disadvantaged, it is important that we conduct further research on likely pension outcomes and interactions with means-tested benefits in a post-reform regime where private saving will be more accessible through personal accounts. Without this research, I do not think we should be seeking to tie ourselves to a solution that may not be the most appropriate. While both amendments are clearly aimed at providing additional support to those in low-income groups, we cannot consider them in isolation. The reform package, as presented, represents a carefully considered package of measures and one which is both affordable and sustainable. The measures already proposed will bring benefit to many of the poorest by ensuring that more people will have a full basic state pension that will be uprated in line with earnings, and greater coverage of the state second pension. It will also see the earnings link for the standard minimum guarantee with pension credit continue into the future. Taken together, these measures will provide a solid state foundation on which people can build their retirement plans. We therefore do not want to add to it at this stage. Accordingly, I ask my noble friend to withdraw the amendment.

My noble friend made a powerful point about the sum of £4 a week frozen since 1988. Can the Minister check the figure and let us know what that sum would have risen to by now, using any average earnings index he likes?

I shall be happy to do that. However, I recall from our debate on benefits uprating a few months ago that some of those disregards have been uprated. It is not right to say that they have all been frozen. Does the noble Lord require the seasonally adjusted figure?

We are talking about the cold weather payment. I am grateful to my noble friend for his careful reply and I thank the noble Lord, Lord Kirkwood, for his contribution. I share with my noble friend my support for what pension credit has done to address pensioner poverty—it has been terrific. In 1997 a pensioner would have had £67 a week; today they get over £119. That has been transforming, and as my noble friend has often told the House, a pensioner is no more likely to be poor than any other member of society, thanks to pension credit.

Having said that, I think that two issues divide us on Amendment No. 20. The first argument put by my noble friend is that because pension credit is sufficiently generous, which it is compared with previous levels of financial support for pensioners, it follows that pensioners do not need an earnings disregard. But those are actually unconnected. I can see how the argument would apply to someone of working age, perhaps a young man in his 30s, where one is seeking instead not to make it so comfortable to remain on benefits plus disregards that he never seeks a full-time job. I understand that argument. It may not be a view I always share, but it is understandable. However, it does not apply here. We are not talking about large sums, perhaps £20 a week for a single person, given that most people on pension credit guarantee by definition are single. Working for a few hours a week produces a degree of comfort, social life and interest. It is desirable that people should pursue that. The fact that pension credit has become more generous does not answer the point that, at the risk of sounding pious, people feel the need to be useful, to be valued, and to play a full part in society. Doing a modest part-time job is a way of achieving that. We should be encouraging such efforts, as well as the extra income they produce.

The second point made by my noble friend on Amendment No. 20 was that this would cost. I do not believe it. Can he tell me—I am sorry to do this, but he did run this argument—how much we now dock off the benefits of people who have an earnings disregard that exceeds the figure? Could he give me some idea of the figure for people who declare it and we dock their pension? I bet none. I bet the figure cannot be calculated because it is too low. It is a psychological point. People who have small jobs tend to take cash in hand, do not declare it and, as a result, we carry on paying out exactly the same money. All we do instead is build fraud or the grey economy, in the words of the noble Lord, Lord Kirkwood, into the system. I stand to be corrected, but I do not believe that these costs exist. The notion that there would be additional costs—that additional moneys would be paid out that currently are not being paid out—is simply, if I may suggest it gently, nonsensical. It gets the psychology of this the wrong way round.

My noble friend presses an interesting point. I have not seen any particular figures and neither has she—we will have to see what is available—but even if there were no figures available, that does not mean to say that no costs would be involved.

Can my noble friend say what those costs would be? For instance, someone who may have the opportunity of a three-hour-a-week cleaning job can either say, “No, because it will come off my benefit”, or, “Yes, but I will not declare it”, in which case their benefit is paid. The third option, which is that they take the job, declare it and that is docked off pension credit, seems to me implausible. I have seen no evidence of that at all. Perhaps my noble friend can tell me how he thinks a cost would arise.

Effectively, it would arise from the latter circumstance. The proposition that there is no one in the UK who would declare that they had earnings in respect of the disregard does not seem particularly plausible either. We are dealing with hypothetical examples here. I acknowledge that getting hold of the figures might be difficult, but to assume that there would be no cost involved is not reasonable either.

I am sure that there is at least one retired clergyman who would declare it, but my noble friend must surely accept that we are dealing with unquantifiable costs, because they are so minute. That is not how the psychology of this would work.

As to Amendment No. 25, my noble friend again said that pension credit was very different from other benefits because it had no upper cash limit on the level of capital. That is, of course, true, but only in a notional sense. Although the first £6,000 is clear, thereafter you deduct £1 for every £500, which means, effectively, that you run out at between £12,000 and £15,000. So you do not need a capital limit because the notional income will get you there at any rate. Although his words are true that there is no limit, in practice there is because pension credit effectively means that, if you have capital of more than about £12,000 to £15,000 a year, the notional assumed income that derives from this will wipe out your eligibility for that pension credit.

My noble friend did not refer to the comparison with the basic state pension, an issue that intrigues me on all these commutation issues. I do not think that he picked up the point in his response. It is not easy—we all had wet towels wrapped round our heads when we were trying to work out what this might imply—but if someone defers for five years and takes that deferral as income, it costs them their pension credit. If they defer for five years and take exactly the same sum as a lump sum, it costs them nothing at all; it does not affect their pension credit one iota. They have a disregard for up to £40,000, which is great, but there is an anomaly to be addressed, not only within the basic state pension but in the read-across from the basic state pension to the private sector pensions.

My noble friend has not addressed this issue today and we may or may not revisit it, as the case may be. I do not have easy answers for it because I do not want to knock the notion of people coming into retirement with a lump sum that they have earned, but I suggest to my noble friend that his argument on this was not persuasive. However, given the time, I am now in a position to withdraw the amendment.

Amendment, by leave, withdrawn.

I beg to move that the House do now resume. In moving the Motion, I suggest that the Committee stage begin again not before 8.35 pm.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.