Tuesday, 1 March 2011.
Pensions Bill [HL]
Committee (1st Day)
My Lords, if there is a Division in the Chamber while we are sitting in Committee, we will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Clause 1 : Equalisation of and increase in pensionable age for men and women
1: Clause 1, page 1, line 6, leave out “December 1953” and insert “April 1955”
My Lords, I take this opportunity to thank the Minister and his team, who have been very helpful and accommodating as we have gone through our amendments. There have been some government amendments, and I am grateful for their explanations.
The purpose of this group of amendments should be very clear. Collectively they seek to review the Bill’s acceleration of the equalisation of the state pension age for men and women. They preserve the existing timetable set out in the Pensions Act 1995, which means that women will reach pensionable age at 65 if born after 5 April 1955. For women born between 6 April 1950 and 5 April 1955, state pension age will gradually increase over a decade, rising one year in every two.
The state pension age needs to rise in order to pay for a more generous basic state pension linked to earnings. This was a principle established by the Labour Government in 2007 and one that we continue to support. By retaining the table contained in the Pensions Act 1995, the increase in state pension age to 66 for both men and women is negated. However, our Amendment 4 brings forward the increase for men and women to 66, accelerating this by four years to between 2020 and 2022.
The amendments make no specific proposals for changing the current timetable for increasing SPA to 67 between 2034 and 2036 and then to 68 between 2044 and 2046, legislated for in the Pensions Act 2007, although we accept—as do the Government, I believe—that increasing longevity will eventually cause that to be revisited. We do not challenge the life expectancy projections that the Government have used to underpin their policy changes. We do, of course, accept that life has literally moved on since 2004, and the data which underpin the Turner settlement have moved on. Average life expectancy for those who reach 65 in 2026 has increased by 1.5 years for men and 1.6 years for women. Our challenge to the Government and their response to these changes is to the speed and equity of the adjustments that the Bill seeks to make, particularly for women.
When the Conservative Government legislated to equalise the state pension age for men and women at 65 in 1995, they gave 15 years’ notice from the beginning of the change and indeed 25 years’ notice of the end of that change. When the last Labour Government legislated to increase the state pension age to 66 in 2007, they gave 17 years’ notice to the start of the process. In this Bill, the coalition Government give just six years.
In setting out their policy objectives, the Government instance the need to take account of the increase in life expectancy, the need for spending on the state pension to be sustainable, the need for intergenerational fairness, and the need for fairness in the balance of support given by the working age population. We do not disagree with these aspirations, but consider that there is another policy objective that has been overlooked: fairness for those going through the transition, with sufficient notice for them to have the chance to adjust to changed expectations of receiving the state pension age at a later date. We know from the impact assessment that the timetable proposed in the Bill will affect some 5 million people; 500,000 will have to wait more than a year extra to receive their state pension, all of them women. Of these, 300,000 women will have to wait for more than 18 months and 33,000 will have to wait for two years. Contrast this with our proposal in this amendment, which affects 1.2 million fewer people. It will affect about the same number of men and women, and no one will have to have an increase in state pension age of more than a year. In terms of intergenerational equity, measured as a proportion of adult life spent in receipt of a state pension, the timetable we propose has a smoother transition to the long-term trend of 32.5 per cent for men and 34.8 per cent for women.
It is accepted that the Government’s proposal will save more in resources, although the savings do not begin to accrue until 2016-17. As the impact assessment makes clear, there is a judgment to be made. Indeed, we thought that it was a judgment that the coalition Government had made when declaring that the date when the state pension age started to rise to 66 would not be sooner than 2020 for women. Perhaps the Minister will take the opportunity to say why the Government have changed their mind on that issue. Just look at some of the unfairness. A woman born in April 1953 will be able to get her pension at 62 years and 11 months. A woman born in April 1954 will have to wait until she is 66. Many women and men affected by these changes would already have plans under way for hitting what they thought was their state pension age. We have heard from many who have reduced hours or given up work and taken on caring responsibilities for parents or grandchildren. The position for women is compounded because of the disadvantage that this generation of women has experienced in terms of lower earnings, interrupted careers and restricted access to private pension schemes. They have less flexibility to respond to the changes that see their state pension age rise by six years between 2010 and 2020, compared to just one for men.
I take this opportunity to particularise some of this unfairness. I am sure that other noble Lords have received, as we have, a host of representations from people and I would like to quote from two. One is as follows:
“Yes, I’m now 55, with only a small additional work pension on top of the State pension to come, because I wasn’t able to contribute anything extra to my employers scheme when I was younger—my husband & I separated and I was a single parent of 2 children and there just wasn’t the spare cash. I used to be a part-time worker—part-time women used to be discriminated against in not being able to participate in pension schemes (look up ‘Beswick Cases’ and the ‘Barber judgements’). So like many women the same age I’ve grown up in one era ‘Your husband will take care of you financially’, then things changed. I would have been able to retire with a full pension (such as it is) at 60; then, the Equalities legislation was moving it slowly towards 65 but at least I had due warning”.
Another person makes a point that I highlight:
“The law when I was younger prevented me from paying into a private scheme when I was not working or was working part time which happened because due to rearing children and the ill health of one of them, which he will have on and off throughout his lifetime. I feel it was a waste of money buying the extra NI contributions because since I bought them the government is now proposing to give me no pension at all for 2 of the years for which I thought I was buying a full pension”.
I pick up on that point in particular. The noble Lord will be aware of the buy-back opportunities—six years’ buy-back with class 3 contributions. He may also be aware of the further buy-back opportunities that were argued for and recommended to the House by my noble friend Lady Hollis. I imagine that more than a few people found themselves buying back extra class 3 contributions to secure a full state pension, on the assumption that they would give up working at a known date, given that the state pension age was set down in the 1995 Act. Now, like this person, they may find themselves waiting an extra two years for their state pension, continuing to work to be able to survive. By working, they would pay their national insurance contributions, and the buy-back that they had already made would be a complete waste of money. It seems to me a point to pick up and pursue further. I was alerted to it particularly by this representation. We need to reflect on what notice and information were given to people that caused them to go through these buy-back arrangements and to waste a not insignificant amount of money.
I also say to the noble Lord, Lord Boswell, that his amendments look on the face of it to be somewhere between the Government’s position and ours, but doubtless he will expand on that when he introduces them. It would be helpful if he could give us an analysis, in terms of the increase in the state pension age, of those affected who will have to wait less than a year for their state pension in comparison to the current arrangement, those waiting more than a year, those waiting a year and a half, and whether there are any up to the two-year mark.
My Lords, perhaps I may respond to the very helpful introduction by the noble Lord, Lord McKenzie of Luton, and apologise to the Committee pre-emptively, as this is my first occasion in Committee, at least at this end of the Palace. I thank him for raising matters of substantial public concern in a moderate way, and shall try to talk around them and to explain matters connected with my own amendment. It will be obvious to the more perceptive Members of the Committee that, despite the heroic efforts of the Clerks with occasional interventions from myself, in this case it probably was the printer who was responsible for certain infelicities, one of which appears in Amendment 3A, which refers to 2010. This should of course be 2020. In Amendment 4A, there are two references to 2010 which should be 2020. Though I may take the Conservative Whip, not even I would claim to wish to legislate for the past. Those will be self-evident as slips of the pen.
If we unpack the principle of this, we always begin with a troubling element to do with disturbing the contributory principle, or disturbing people’s settled expectations. In a pure world, which ours is not, we would probably wish not to disturb anything from the moment when somebody entered the scheme as a young person and was paying on a certain assumption, in the hope that 40 years later they would receive their due pension. That was perhaps the philosophy of 1948. I do not think it is the practice of 2011. It is clear that, for a whole variety of reasons, successive Governments have changed that, particularly in relation to the inexorable march of longevity and the pressures on the public finances.
I was very grateful to hear the noble Lord, Lord McKenzie, making that point specifically, and of course we all make it. As he rightly intuited, my effort is in a field which is certainly somewhat exploratory, and I am exploring it in parallel with a number of Parliamentary Questions. We do not quite know the distribution, but we do know, on the Government’s proposals, that half a million women—of course it is only women—are affected by phase 1 of this change, and then men and women are affected by the move in the overall pension entitlement thereafter. There is an inhibition because it is felt, perhaps for reasons of concern about European sensitivities, that we are dealing with all the women in one go, and then moving forward together. The Minister may wish to comment further on that in a moment.
As the noble Lord spotted, my attempt was to find a median position on this, and in particular to deal with the situation so that no woman should expect in effect to have to work more than an additional year. That then retards the timetable, not to the level of the Opposition's proposal, but it means that one has to make consequential changes in the adjustment for men unless—I rehearsed this on Second Reading—it were decided that one way to finance a softening of the impact on women was to start the male timetable earlier. For a reason that I will give to the Minister in a moment, I think that the equity of that is not wholly improper and a case could be made to the European Court that we were not seeking to widen the margin of discrimination if we started on the business of moving men first.
The immediate concern is with the comparatively small number—perhaps 30,000—of women who seem to be in the one to two-year category, and there are a number of ways of dealing with that. The scheduled basis, which both the noble Lord in introducing his amendment and I in my alternative schema have sought to address, respects the contributory principle and the national insurance concept, and seeks to provide some basis under which, according to date, if contributions have been paid you get to claim your pension on that date.
I should perhaps mention for the record that my wife and I have both claimed, so we are through the gap—we are safe from those depredations—but there are alternative approaches, which we shall rehearse later, which might be by means of specific intervention in relation to illness or pension credit support for people whose overall pension was inadequate, and we look forward to a time when it may be possible to increase the basic state pension as a better platform. I appreciate that that is not for the Committee now.
Having, I hope, explained why I want to try to limit the provision to a year—it is an arbitrary choice; we can all argue about it—I cite one letter I have received from among a number, which is moderately put, precise and describes the two elements of the situation. The first is what one might term an intersororial tension—I am sure that it is not substantive. The writer deals with the perceived unfairness:
“My sister was 60 on 27th December 2010. She will receive her state pension on 6th September 2011, when she is 60 and 8 months old”.
That of course reflects the first moves started in the 1995 Act.
“I will be 60 on 20th July 2014”.
That is three and one half years younger than her sister, to gloss the letter.
“Under the new proposals I will receive my state pension on 20th July 2020, when I am 66. That is 5 years and 4 months later”.
So there is, as it were, an escalation of the gap between the two sisters of nearly 100 per cent. The lady goes on to write:
“I would also like to note that with the new proposals, my husband who is 1 year and 1 month older than me will receive his state pension on 6th March 2019, which is 1 year and 4 months before me”.
So there is a strange but not unique game of leapfrog going on between the genders in that case. That is one reason why I say to the Minister that it may not all be as blatant in terms of European jurisprudence as he may fear. It clearly looks odd that that is happening, and I am sure that she is not the only case.
I single that out as a well prepared example of the sort of difficulty that arises. We all know, and the opposition spokesman has generously conceded, that we need to make progress because of longevity and the economic constraints. We are anxious—I think I used this phrase—to take the rough edges of these proposals and produce something which is not unmanageable or demonstrably unfair. We can do it either by the timetable approach set out in the thinking behind these amendments or by more specific intervention, as discussed in later amendments. There is a perceived inequity that needs some attention and on which I am sure that my noble friend will wish to respond.
My Lords, I support my noble friend Lord McKenzie with regard to this section of the Bill. I have received many letters from various organisations about the Bill—like most people, I expect—and one thing that they all have in common is that they are all very concerned about what they regard as the acceleration of the timetable for women. I have had correspondence from Saga, which tells me that it believes that 2.6 million women will be adversely affected. It points out that the women concerned had not expected such an accelerated timetable. The TUC has also said that it is concerned about the acceleration and its effect upon women. Age UK is taking a similar posture, and so is Which?.
A number of noble Lords who contributed to our Second Reading debate concentrated on what they saw as the unfairness to women in the accelerated timetable. The amendments proposed by my noble friend are an attempt to deal with that, for which I thank him. I hope that the Government will be prepared to take on board that this is a real concern about a Bill that basically many people accept. Practically everyone who has written to me says that they accept the whole idea of auto-involvement—of people being in the pension industry, so to speak, and being pension savers for very often the first time in their lives. It therefore seems a shame that we might get some difficulty and some opposition to a Bill that I basically accept. I accept that we have to have a different age of retirement and so on because of longevity and the various other arguments that have been advanced in favour of the Bill, but on the other hand there is a lot of concern about the accelerated timetable. I hope that the Government can do something to help us in that regard.
My Lords, I very much support the amendment of the noble Lord, Lord McKenzie, but I have to say I am very attracted to the halfway position, as it were, of the noble Lord, Lord Boswell. The difficulty is, as Machiavelli said, that you should not have a second line of defence—that you should just go straight through—so I am nervous in saying that I like the compromise idea but there is a basic serious unfairness to a very small group of women. We are talking about a one-off event over a period of three to four years, I think it is, and it would be a good idea to address this. If the halfway house makes more sense in overall financial terms, though, I would support that.
There is a general sense that there is a group of people who are being treated unfairly because of the rate of acceleration, although maybe I will explain later that they shall actually be decelerating towards their pension. The general aspect here is that something needs to be done to ameliorate that unfairness. One of the key ways where that could take place, and I hope that the Government are minded to tell us about this, is to seek an upward revision and a much enhanced state pension as a right for all. That is an issue that would affect people in a much more radical way if it were the case. I have read many of the newspaper articles about the uprating of the state pension, but this seems to be almost a hand-in-glove issue. If you use the financing that comes from this measure and put it into a pot, you will be doing something to ameliorate the situation.
I am keen to examine the issue raised by my noble friend Lord Boswell about trying to make sure that we do not overly deal badly and unfairly with a particular cohort of people. The issue primarily relates to a singular group of women. This is a one-off group, because there will not normally be a similar group of people who are so badly affected by the one-year to two-year increase in such a rapid space of time. After all, there is an acceleration of something like three months in age and four months in pension age. You could not get much faster than that, unless you went to three months and 29 days, or whatever; you would be talking shades. It is a very fast rate of acceleration for a particular cohort of women, who will disappear when the system has worked its way through. That acceleration will not be apparent.
There must therefore be some measure which the Government can take to either improve the post-retirement abilities of women in this cohort or lengthen the timetable somewhat to accommodate the interests of a particularly badly-done-by group. When two people whose ages differ by as little as three, four or eight months, or whatever, stand shoulder to shoulder within a year, they will find that the differential in the rate of change in their retirement age is magnified. I hope that the Minister will reflect upon the amendments before us and try to see whether measures can be taken to ameliorate the situation of this group of women.
My Lords, like everyone else who has spoken, I support the amendment of my noble friend. We all agree—and I am sure that we will come back to this issue, following the point made by the noble Lord, Lord German—that what we also need is a decent state pension: the £140 pension espoused by his honourable friend Steve Webb in the other place, which would be transforming for both men and women in retirement. However, that does not address the issue here, which is about not just equalisation—no one disputes that—but the speeding up of that equalisation, including the very speedy additional year.
First, I suggest that that makes some easy assumptions that are false. Secondly, it has some unintended consequences that have perhaps not been considered. The first easy assumption is that because we are all living longer, we must work longer to support our old age. One understands the stats about the number of workers relative to the number of pensioners and the additional costs in the future of long-term care. However, increased longevity is not actually accompanied by increased years of full and healthy living, whereby one enjoys leisure, holidays and time with grandchildren. All the research shows that those extra years of longevity come with extra infirmity, particularly for those who are worse off. It is very much a class, as well as a gender, issue. Since the Black report, the health inequalities of those in the bottom E and D classes have widened, not narrowed, relatively—not absolutely, as obviously they have improved for us all.
Those extra years come with extra infirmity—fortunately not bed-bound infirmity necessarily requiring residential care but second-order infirmity, including the need for help with, for example, cleaning, transport, aids, appliances and care to allow you to stay in your own home. The implication is that the healthy years of retirement will be squeezed and reduced as retirement age increases, because you will not enjoy extra years of healthy living at the other end as a result of increased longevity. The first thing to address is the fact that we are squeezing the number of years people, particularly poorer people, can hope to expect to enjoy in retirement. The second assumption or myth is that women, as a result, will stay in the labour market longer and until they retire. That retirement age will increase first to 65 and then to 66. I do not know why we think that this will happen because it has not just been connected to the state retirement pension or even to the fact that employers have traditionally got rid of people at the age of 65. It has never been true for men. The majority of men leave the labour market at around 62 or 63 years old. It is even lower in Europe. In other words, half of all men have been on benefit for at least a year, sometimes two years or more, before they draw their state pension. Men compared to women have more secure and better paid employment. Therefore, they have more incentive to stay on until the age of 65. But they cannot and they do not.
Why do we therefore believe that women are likely to do so when men currently do not? It is possible that if a woman’s health permits—obviously, I hope that it will—she will continue in a part-time or a mini-job, which would give her a more flexible approach to the labour market. But all the statistics show that she is no more likely than her partner—I guess that she would be less likely than her partner—to maintain full-time work past her early 60s whatever the basic state retirement age is. Therefore, she has to live on something or someone else. Either she will be married to a man or in a partnership with a man who is two or three years older and who is drawing his state pension. But she will not be able ultimately to draw hers for another two or three years if she is two or three years younger than him. Therefore, as a couple, they will be poorer and either she will draw JSA or ESA, or he will draw pension credit, which is a point to which I want to return.
The cost of either her being on JSA or his drawing pension credit will be little different, I suspect—I would be interested if the Government have the figures—from the cost of the married woman’s 60 per cent dependency pension now. I suspect that a lot of the savings are fallacious in that respect. Alternatively, she may be single and on JSA or ESA, having first to run down any capital she may have beyond £16,000 and she simply lingers longer in poverty while awaiting her right to draw state pension and pension credit, thus ensuring that she enters retirement with increased need for that pension credit.
The good news is that because we introduced the 30-years-only rule for national insurance, together with other changes for carers, grandparents and so on—introduced by the previous Government and my noble friend Lord McKenzie but supported on all sides by all parties—she would increasingly come to draw a full state pension in her own right. However, because the Government propose to move so quickly, they are effectively creating a cliff edge, which has been addressed in several of the previous speeches. If the Government are determined to hold to their timetable, I wonder whether they could at least smooth the financial cost for individuals. I calculate that some 236,000 men will be the real losers from these changes as well as women. Have the Government considered this? I have not seen any mention of this at any stage.
Why? At the moment a man over 60 on JSA or the future equivalent of ESA getting, say, £67 a week can under equality rules be topped up to the pension guarantee—not the pension savings guarantee—of £132 a week on equity grounds because women can. I suspect that much of the Government’s savings—I have calculated them to be something like £740 million in total for all men removed from this—will come from the unintended consequences perhaps of men losing their entitlement to pension credit, which comes on equality grounds because as women’s pension age rises so men of that same age will lose their right to pension credit pari passu.
Therefore, men as well as women face a cliff edge because of their potential loss of pension credit which some 236,000 men currently enjoy between the ages of 60 and 64, even though they cannot draw a state pension. As women’s state pension age rises, so in tandem does the age at which men can draw pension credit, although not, of course, the state pension itself. So 236,000 men and all the women described by previous speakers will be much poorer as a result because they will steadily lose access to pension credit as women’s pension age rises. Men’s income will fall from £132 to £67. If that is not a cliff edge, I do not know what is.
What are the Government going to do about this? Will they guarantee that men currently below 65 on pension credit will keep their pension credit benefit come what may? In that case, we will find that a woman a year older than a man will have half the income he has. Is that acceptable? I think not. The alternative is to withdraw the benefit from him overnight so that he faces his income being halved. What are the Government going to do? It is a complete mess, and I have seen no information to tell us how this will be handled. We could find a single man of 63 having double the benefit income of a single woman of 63 by virtue of the fact that he is drawing pension credit and of course—given the universal credit, which I very much support—no man of 61 currently on pension credit will dream of coming off it to go into work because, if he loses that job and comes back on to benefit, he will have lost his eligibility for pension credit because of the new rules that will have to take effect. It is a mess.
Either the Government keep the benefit already attributed in which men, age for age, can have double the income of women, age for age, or they will take it away and give a cliff edge to men that is completely unfair and without any possible planning. What do the Government propose to do about what seems to be a serious anomaly for 236,000 men, according to my statistics from the Library, who are currently enjoying pension credit between the ages of 60 and 64?
Behind that comes the question of whether we can smooth this cliff edge. Could we think of an age-related addition for men and women alike who are caught by this, not the full pension credit rate of £132—that is going from £65 to £132—which, given the cost, would be unacceptable, but an age-related addition of perhaps £30 a week, which would take the JSA or ESA for any man or woman between 60 and 65 as the age of retirement is gradually raised for women and then eventually for men and women alike? We should then take their JSA—because they have to be on some benefit or other if they are not in work—to perhaps the state pension level of £97, although not to the pension credit level of £132. In other words, it would be a halfway step. Instead of dropping from there to there, you could provide a halfway step. Any man or woman over the age of 60 would be eligible for an age-related addition of, say, £30 for an individual and £45 or so for a couple on top of their other benefits. This would smooth the loss of pension credit for those not yet of state retirement age but currently receiving it, and would effectively bring them up to the level of the state pension, but not to the level of the pension guarantee credit that they would otherwise have had and in the past have claimed. It would stop some men having potentially a better financial deal from the state than some women because they are already on pension credit although they are under 65.
I would much prefer the Government to slow down the implementation of the raising of women’s retirement age, as my noble friend argued. It is much the preferable solution, but if the Government insist on keeping their current timetable, I ask them to respond to the unintended consequences for those men on pension credit and whether they are comfortable with the fact that a man of 63 could well end up having double the income of a women of 63, which I am sure would not be widely acceptable. If the Government are uncomfortable with the implications of pension credit for existing men, then they have a moral responsibility to address this cliff-edge problem for women in the future and, frankly, for thousands of men now.
My Lords, I support Amendment 1 and others in the group in the name of my noble friend Lord McKenzie. As so many speakers have already said, the amendment is not an argument in principle about whether the state pension age needs to rise to keep fiscal sustainability in the state pension system. It is not an argument in principle about whether or not the timetable for the move to age 66, 67 or 68 should be revisited. On the point made by the noble Lord, Lord Boswell, I do not even argue that one cannot disturb settled expectations; in the face of the longevity trends, it is not sustainable to make that assumption. This is not even an argument about whether or not women’s state pension costs or poor people’s pension credit costs should make a contribution to reducing the fiscal deficit in this Parliament, because the Government’s proposals mean that the savings would flow from 1916—sorry, not 1916; oh that that were true. I mean 2016.
The amendment, however, is an argument about an important principle that is valid not only in this instance but whenever one revisits accelerating the state pension age, which might be the case on the subsequent increases—that is, that the manner and the timing of any state pension age increase has to give people fair and sufficient notice to adjust and minimise any disproportionate impact on particular groups of people. The acceleration of the equalisation timetable does not meet that principle.
I asked myself three questions. Who is impacted by the accelerated timetable? Are particular groups disproportionately impacted? Can those impacted reasonably adjust to their loss in the time given? I invite the Committee to look at those questions as well. In terms of those impacted, I do not want to rehearse all the figures that we have shared about the position of a particular group of women in their late 50s, but it is worth confirming that it is not a small number—500,000 will have their state pension age deferred for at least 12 months, and 300,000 for 18 months to two years.
With regard to the amendment of the noble Lord, Lord Boswell, it is important to see the distributional impact. I would not want the situation to be like the water in a balloon, where you think you have dealt with it moving one way but you have just created a consequence in another. If progress can be made, though, progress is valuable.
The issue that the amendment does not address—I wanted to address it with regard to Amendment 7, but my noble friend Lady Hollis has anticipated it—is that of people on pension credit, both men and women. That relates to the impact of this accelerated timetable on the poorest. The age of eligibility for pension credit tracks the state pension age for women, so by definition the poorest people who might otherwise have thought that they could present themselves as eligible for pension credit now have the same timetable problems. Again, I do not want to anticipate some of the more detailed arguments that I want to put in speaking to Amendment 7, but their loss in percentage terms is much greater because of their relative wealth and earnings position.
In addition, there is a greater concentration among certain ethnic communities and disabled groups. Again I am slightly anticipating Amendment 7, but people in certain ethnic groups and the disabled are much more likely to present themselves for pension credit at the minimum qualifying age. Consequently there is a sub-concentration impact effect looking at the poorest groups. If the deferment of pension credit was as great as two years on the age of eligibility, the loss could be as high as £15,000, so the question is whether people can mitigate at least a reasonable amount of their loss in the time given. One has simply to look at the time allowed. It is a pretty short period for a lot of people. We rehearsed the figures on Second Reading and found that women in their late 50s face a historic legacy of discrimination in the provision of state and occupational pension from which they simply cannot recover. They have lower lifetime earnings and lower state pension entitlement. On average, in 2010, women were entitled to a state pension of £96 and men £124. Women have lower private occupational savings; men, on average, at age 56 have savings six times higher than women. Women have broken careers and are more likely to be carers. Although the Government argue that there is virtue in their accelerated timetable because it accelerates the reaching of equality between men and women—is that not a good thing?—that argument completely ignores the systemic inequality that has arisen for historical reasons and that you cannot get rid of. Therefore, I do not think it is mitigation to say, “We have got men and women more quickly on to the same pension age”.
In terms of women’s ability to mitigate that loss, we rehearsed the arguments on Second Reading and found that significant numbers would be carers and would not be in the labour market. They were much more likely to be working part-time. If one looks at the pattern of women’s working, there is a peak of part-time working in their 50s. They have lower earnings because of their sector concentration. Because of their income levels they are much less likely to be in a pension scheme. For the poorest and the disabled, if the timetable that was set for the equalisation of the state pension age is held, they are going to have the greatest loss in percentage terms, up to 10 per cent of state pension income lost as a result of that qualifying age for pension credit tracking the accelerated increase in women’s state pension age.
This amendment and those associated with it do not argue that people cannot be expected to adjust to an acceleration of the increase in life expectancy. They argue that the manner in which you do that has to allow them sufficient time to adjust; and you have to be aware of disproportional impacts and mitigate accordingly. Notwithstanding the desire to see the distributional merits of the amendments proposed by the noble Lord, Lord Boswell, that is why these amendments are intended to meet the principle of fair and proper notice and the need to mitigate disproportional impacts. The original timetable on the equalisation of the state pension age for men and women should hold.
My Lords, the purpose of the amendments moved by the noble Lord, Lord McKenzie, is to delay any change to the age of 66 until women’s state pension age is increased to 65 on the current schedule. The amendments moved by my noble friend Lord Boswell aim for, if I may use the expression, a third way, by proposing a timetable that increases the state pension age to 66—one year later than the Government propose, but one year earlier than proposed by the noble Lord.
I begin, however, by welcoming the fact that, in each case, the amendments propose to bring forward the increase to 66, in the first case by four years and in the second case by five. This reflects widespread recognition that the current timetable for raising the state pension age to 66, which was approved by this House and in another place less than four years ago, has already been overtaken by events. I will not, therefore, detain proceedings by repeating the case for a faster rise in the state pension age, which I am pleased to note that my noble friend supports. I will just go to the point made by the noble Lord about the coalition agreement, and I say upfront that my honourable friend the Minister for Pensions has said in another place that women’s state pension age does not start rising to 66 until 2020.
I will endeavour to explain why, notwithstanding the impact which we recognise our proposals will have on a small minority of women, we believe that we should not delay until 2020 before we start on the path to 66. We estimate that our proposals will save £30 billion, in constant price terms, in state pensions expenditure, after taking account of all of the increased spending on working-age benefits—a point which the noble Baroness, Lady Hollis, was concerned about. The difference between what we have proposed and what is proposed under the amendment of the noble Lord, Lord McKenzie, is about £10 billion, which is a very significant sum. It is equivalent to one-third of the total savings to the public purse from our proposals. In proposing to forego this £10 billion, the noble Lord is perhaps losing sight of what such a sum represents. To help put this in context, in order to save even half of that today, which is broadly the annual savings from raising the state pension age by a year, we would, for example, have to cut the education budget by 10 per cent over the spending review savings. The estimated benefits from additional tax and national insurance receipts would also be cut by nearly a third, from £8.1 billion to £5.6 billion. The alternative proposition put forward by my noble friend would also significantly reduce the savings from our proposals, in this case by more than £7 billion.
The question is: who picks up the tab if we delay until 2022 or 2021? I suggest that the answer is: our children and our grandchildren. The point has been made that our proposals will make no contribution to reducing the budget deficit in this Parliament. This line of argument implies that, once the immediate fiscal crisis is out of the way, we can afford to relax. Although we expect public debt to be on a declining path by 2015-16, it will still be well above the pre-crisis levels. The OBR forecasts that public debt will be 67 per cent of GDP in that year, compared to less than 40 per cent five years ago. We need to do all that we can to keep debt down, and hold it down over the medium term, to ensure that we have the capacity to respond to future fiscal shocks. The cost of increasing longevity will not, unfortunately, stop increasing in 2015.
I turn to the impact on women, which is at the core of these amendments. The argument is that the adjustment we propose is unfair to women in their late 50s. I do not dispute the fact that a gender gap still exists in pension provision—a point made by several noble Lords. However, the proposals of the noble Lord, Lord McKenzie, do not suggest that we should delay increasing the state pension age to 66 until the gap is closed. Nor do I dispute that, because of our proposals, some women will need to work for longer than they may have otherwise planned to. I am prepared to say that I do not think that that is a bad thing. We need people to work longer because they are living longer. We need them to contribute more and, by working longer, they can save more for their retirement. Working longer has not just financial benefits for the individual; people of working age are generally healthier when they are employed than when they are not. Some of these women will indeed increase their pension saving as a result. Only a small proportion, some 4 per cent, of women currently aged between 55 and 57 say they are already retired; while around 70 per cent are still in employment.
Let me deal with two of the issues raised by noble Lords. On the point raised by the noble Baroness, Lady Hollis, on the cliff edge for men as well, I do not see a cliff edge in our proposals. The whole point is that there is a gradual increase. Anyone, man or woman, who is on pension credit, must already be above women’s state pension age, and by definition they will not lose out or have to move off pension credit as the state pension age increases.
That means that a man who is currently on pension credit, who qualifies for it shortly after his 60th birthday, will hold on to that for the next five years, while women’s pension age increases. Therefore, a woman of a similar age could have half his income.
The point is that once you are on the system there is a gradual move up, so you do not bounce on and off it. You are on that system. Clearly, we are looking at two systems—a pensions system and a working-age support system. Nothing changes while we have that gradual increase for the individuals concerned. People will join the system at different points, depending on their age. Fundamentally, there is no difference between the Government’s position on either of the amendments.
Let me deal with the point raised by the noble Lord, Lord McKenzie, on buying back class 3 voluntary national insurance contributions. There has been a lot of debate about this matter during proceedings on various Bills, as he will be more aware than me. I believe that it took two Bills to allow people, mainly women, to buy additional years, going back to 1975. However, the noble Lord will also recall that this particular easement applied only to people who reached state pension age before 2015. People must weigh up their options when deciding to buy additional national insurance contributions, and we do not have any plans at this moment to provide refunds.
Let me turn to the facts about women’s life expectancy. Women will on average still draw their state pension for longer than men after the pension ages are equal—a fact that was rather put to one side during our debate before the Recess. It is important to record that, at the time that the decisions were made about when to raise the pension age to 66, a woman born in 1954 would be expecting to draw her state pension at 64 for an average of 24 years. Thanks to increasing life expectancy she will still on average draw her state pension for 24 years, even with the rise to 66 proposed in the Bill.
I pick up the point raised by the noble Baroness, Lady Hollis, about the healthy retirement period, which she said would be squeezed. There are various figures, but the overview is that there is a slight squeeze on health. However, it is not very great. We are living healthier, longer lives with a few months of squeeze. In the figures that I have from 1981 to 2006, the age until which someone aged 65 could expect good health increased from 75 to 78 for men, and from 77 to 80 for women. With the trends that we are seeing, we clearly expect that to continue improving and that women should still enjoy a healthier retirement than men on average.
By delaying any rise until the 1995 legislation has run its course, we are perpetuating another sort of unfairness—that which sees those who reach state pension age before we can make any change enjoying all the gains from the rise in longevity without paying any of the price. My noble friend Lord Boswell talked about ways that we could move the age up differentially. It would probably be more convenient to leave a discussion of that until later, because the European directives are complicated. I am sure that he will remind me to come back to give a rather more detailed explanation at that point.
I shall sum up. Bringing forward the increase to 66 is about helping to maintain fiscal sustainability beyond 2015. The proposals put forward today by the noble Lord would cost £10 billion, as I said, and my noble friend’s compromise proposal—the third-way proposal—would still cost more than £7 billion. That cost would need to be borne by people in work. I do not seek to underplay the scale of the increases that a small proportion of women will face from the proposals, but they are unavoidable if we are also to achieve a rise to 66 by 2020. For the reasons I have set out, I firmly believe that this is the right course. I urge the noble Lord to withdraw his amendment.
I should like to push the noble Lord again about the timescale. I think that there has been unanimity, pretty much, that the state pension age for women and men should be equalised. The debate has been about the increased speed of it and, therefore, the degree to which women can reasonably have been expected to make provision for it, and to take into account whether they are in waged or unwaged work. As we know, many women will be in heavy but unwaged work at that point in their lives.
Is the noble Lord aware of a similar instance some time back? In the 1982 social security legislation—I am not sure whether it was introduced by the noble Lord, Lord Fowler, but it might have been—the Government proposed, with some intellectual justification, to remove the right of widows to claim 100 per cent of SERPs entitlement, rather than the conventional 50 per cent as per the status of a widow. That was due to come into effect 20 years on, in 2002. The Government were going to give 20 years’ notice, except that they did not. They forgot about it entirely. Suddenly, in about 1997 or 1998, that issue landed four square on my desk. It was clear that women did not have sufficient notice and that three or even five years’ notice, as it would have been in 1997 for 2002, was regarded by the noble Lord’s party as unacceptable, even though it had been an omission of publicity.
We all agreed that five years’ notice of something which would happen only to a group who could not foresee their future, because it was about widowhood, and that they would inherit only 50 per cent rather than 100 per cent of SERPs as a result, was far too truncated and should be extended. Therefore, we brought back to your Lordships’ House, with all-party agreement, provision that that change should start from 2010 and that for each two years a 10 per cent SERPs reduction should take place. So, if you became a widow in 2012, you would get 90 per cent; in 2014, I think I am right in saying, you would get 80 per cent; and so on. Finally, you would get to 50 per cent by 2020.
In other words, we gave a further 15 years’ notice over and beyond what the Government of the day had originally intended because they had failed to publicise it. We were told that this was unfair and unreasonable, and might even be subject to judicial review, because people were not aware of what was going to happen. Five years’ notice at the point at which we could have escalated the publicity would not have been deemed to have been enough. Will the noble Lord care to comment on this story?
My Lords, I thank the noble Baroness, Lady Hollis, for that. I have to confess that I was not aware of those events in 1982. I was aware of some events—I think that I was writing a Lex column in 1982 so I was not completely out of the picture. The noble Baroness makes the point that there were five years of notice. Clearly, the smallest amount of notice that we have in this instance is 6.5 years for those who are affected at the tightest level. We believe that that period, which admittedly is shorter than other periods that we have seen, will still allow women to plan for their retirement.
My Lords, I thank every noble Lord who has spoken in what has been a well informed debate. When I hear my noble friends in full flight, it almost makes me glad that I am not the Minister any more. Pretty much everyone who spoke, apart from the Minister, recognised the unfairness embedded in these proposals and was supportive of one way or another—either a timetable or mitigation factors—to address that unfairness. The Minister focused principally on the differential costs between our proposals in this amendment, the Government’s position and the proposals made by the noble Lord, Lord Boswell. Of course there is a cost, but judgments have to be made, and the Government will have made a judgment on this. Why did they not do things even faster than they proposed, which would have saved even more money? Presumably the answer is that they made a judgment about what they thought was fair and where the balance lay in all this. We are saying that see the balance lying in a somewhat different position. Let us put this in context. We are looking at about £10 billion not as an annual hit, but over a period of years and when we get to 2016-17, GDP will be of the order of £2 trillion a year. Of course, there needs to be fiscal responsibility, but we think that the Government have got the balance wrong in this.
The noble Lord said that he thinks that it is a good thing that one ramification is that women will be working longer, which will make them healthier and potentially better off. The issue is whether people have the time to adjust. Many of the case studies that we have are of people who have already made their dispositions on an assumption about when they can access the state pension. That upheaval is creating problems. I was interested in what the noble Lord said in response to my noble friend about the cliff edge and continuing entitlement to pension credit. That was particularly illuminating and I am grateful for it. I note that we are going to pick up the point made by the noble Lord, Lord Boswell, about the EU aspects of that later; I look forward to that.
Like the noble Lord and my noble friends Lady Turner and Lady Drake, I think that the people who are contacting us about this are not blind to the changes in longevity. People accept that the issue has to be addressed, but we come back to the speed and manner with which it is being done. That is the bone of contention. That is why we will continue to press the matter.
A number of the points raised in the debate—the pension credit point in particular—will feature in subsequent amendments, so I shall not go into detail on them. The noble Lord, Lord German, made a point that my noble friend Lady Hollis picked up on when he said that part of the mitigation would be to have a decent state pension of £140 a week. That would be good if it were achievable, but it is down the track on any basis. How far down the track, we may elicit a bit further during the course of our proceedings; or perhaps not. However, it does not mitigate what is happening to women now and over the next few years, with people not being able to access the state pension that they thought they were going to get, and which it had been legislated that they would get.
We are bound to return to this issue on Report. On one basis or another, I hope that we can find common cause, whether the middle route preferred by the noble Baroness, Lady Murphy, or our proposal. I hope that we can stick with this consensus and get some real change, because it will make a real difference. I beg leave to withdraw the amendment.
Amendment 1 withdrawn.
Amendments 1A to 5A not moved.
Clause 1 agreed.
6: After Clause 1, insert the following new Clause—
“Revision of increase in pensionable age for men and women
(1) The increase in pensionable age for men and women may be revised in the case of illness or infirmity, or of particularly arduous or dangerous employment.
(2) This revision shall not involve loss of state pension rights.”
My Lords, I am attempting to follow on from what I said at Second Reading, when we discussed the Bill in its entirety. I said at that time that there were many people, mostly men, who wanted to work on and who enjoyed the jobs they were doing, and did not object at all to working on. I made the point, however, that not all jobs or all people were the same. There were instances where I thought that there should be provision for some flexibility, and that is what my wording seeks. It may not be particularly marvellous wording and I am not committed to it, but I have some concern about the issues raised by it.
There are numerous people—mostly those who have manual skills but both men and women—who perform work that, if it is not done, we would notice and we would no doubt complain about it. We complain if our hospitals and schools are not properly cleaned and if we cannot get work done on the maintenance of our homes, if we want somebody to do it. These are the sort of people who, generally speaking, do not have a great deal of educational attainment, and whose skills are manual. They often, at the end of their working lives, look forward very much to being able to retire at what was the standard retirement age, but they now find that they are expected to work for longer, and in many cases they do not want to do so. In many cases they feel that enough is enough. They have had enough working time doing the sort of arduous, not particularly interesting and perhaps even back-breaking job that they have been doing, and they want the opportunity to retire. We want to make provision for people like that to be able to retire earlier. Often they have health problems of one sort or another. That is made clear in my amendment, where I say,
“case of illness or infirmity”.
My noble friend Lady Hollis has already drawn attention to the fact that there are many instances of, and much information available about, the ways in which some poorer people at the end of their lives are subject to ill health of one sort or another, and who should therefore not be expected to continue to work in order to acquire entitlement to their state pension, and certainly not when more years are required. That applies equally to women. Again, as I have said, if you have been doing a job cleaning, you may not want to go on and on until you are 66 or whatever. Certainly, although lighter work might be available, they might not be able to do it. I remember talking to a cleaner who said, “I have not got much education. I am not very good at reading or writing. I could not do another sort of job; I can only do this sort of work”. These people are valuable to us. We notice it very much, and do not like it, if they are not there to do the work that we expect in order to keep our lives reasonably comfortable. I therefore think that arrangements should be made for some flexibility in relation to people doing arduous and sometimes dangerous work. We do not want elderly people clambering up ladders in order to do construction work. That is not a good idea, and it might not even be safe for them to do it. We ought to have a degree of flexibility. I am not wedded to this wording, but that is what I am after, and it is worth considering.
I express my sympathy with the sentiments that concern my noble friend Lady Turner in her amendment. As we can see from the previous debate, the acceleration of the equalisation timetable is disproportionate in its impact on the poorest and on those with disabilities, many of whom will have worked in manually demanding professions. I look to speak to that issue in my Amendment 7. Although I have great sympathy with her concerns, I am not sure whether the state pension age is the right mechanism for recognising the disparity in life experience that people have, and it may take some time to reduce that disparity of experience or outcomes as a result of working life experiences. Certainly, initiatives aimed at improving health generally and reducing the disparities between socioeconomic groups and geographies—because that can be quite distinctive as well—are important, because I have a great deal of sympathy with the point made by my noble friend Lady Hollis, who said that when you look closely at the figures, certainly for lower socioeconomic groups, the healthy life expectancy rate of improvement is not as great. One does not absolutely know how that will evolve over time, which is why it is important that the Government retain initiatives aimed at reducing existing health disparities.
Flexibility in working arrangements is also extremely important because, regarding scrapping the default retirement age—of which I approve—and other stated policies to improve the working position of older people, it is one thing to have a policy but it is quite another challenge to deliver the changes and cultures in working practices at the work face to deliver the flexibility in working arrangements that you need for older people. Certainly, changing employers’ practices and attitudes is important. Those may be more effective mechanisms in reducing that disparity over the long term.
Having said that, if ill health disparity persists between socioeconomic groups, and one does not know how that will evolve—in terms of ill health the early signs are that those disparities could persist—a Government may well want to look at the qualifying age for pension credit to deal with those issues, where it is not possible for someone with ill health to address the disadvantaged-income position that they will be in. The Government should certainly remain open to that, depending on how the figures evolve.
I wish briefly to comment on the amendment of the noble Baroness, Lady Turner. She is on to a substantive issue of concern: that there are clear occupational differences which, in a sense, mirror some of the concerns that many of us across the parties would have in relation to differential health outcomes between people with different occupations. In a sense, that supports some of the points that have been made about relative gender disadvantage. We understand why the Bill is conceived as it is, but those are issues that are entirely proper to raise in Committee.
I am not enthused by the text of the amendment, not least because I am not a Treasury official, and I notice that it provides a power to revise but does not explicitly state that there should be a power to revise downwards. Knowing one or two Treasury officials, they might have a go at the opposite. More seriously, there are concerns about whether we should differentiate the pensions and benefits system by different occupational groups, in the way that some of our continental neighbours have done. I may be old fashioned, but I would be reluctant to do that. Whether we could define the categories in any coherent way that did not give rise to further anomalies or whether this is the right approach, I am sure there is a problem which the noble Baroness is right to draw to the Committee’s attention. For example, I am sure that there are lots of issues in the construction industry or agriculture, which I know well, whereby we can try to mitigate and improve occupational health. We should do that, but I am not sure that a vehicle that is about the state pension age is the appropriate one to do it.
If I may, I want to use the amendment to raise an issue that has been touched on before but which needs to be re-emphasised, although I am sure that noble Lords are well aware of it. That is the differing work patterns, whether waged or unwaged, of women and of men through their working-aged lives.
We all recognise as appropriate that women, even those with children once the children are old enough, should be encouraged to enter the labour market. I have no problems with that at all; I think that it brings independence, increased income, sociability and all sorts of other life chances. Also, it encourages other members of the family to realise that work is indeed an option and appropriate for them in years to come. I have no problem with that, but that is the position of only about 60 to 70 per cent of women. When we talk about them being in work, we are including part-time work as well as full-time work. The number of women in full-time work is relatively very low—mostly among lone parents rather than married women, because married women tend to work fewer hours although more of them do some part-time work.
A group has been hinted at who are doing some of the most heavy-ended work of the lot without anything other than a most trivial benefit income attached to it. That is what I call heavy-end caring. I attach this to my noble friend's amendment. I do not have an easy answer for what should be done about it, except to say that I would like to see an age-related premium attached. Taking a woman who is perhaps in her early 60s at the moment, she is likely, if she is a carer—and several million of them will be—to be caring for someone in their upper 80s. We know that one person in three over the age of 85 is likely to suffer from dementia, which will become increasingly severe although their physical health may remain. We also know that another one of those three aged over 85 is likely to be experiencing severe physical health problems, although their longevity may expand. So she—and it will almost always be a she—will be involved in that heavy-end caring.
I am delighted that the previous Government have allowed for those doing what I call lighter-end caring of 20 hours a week to come into the NI system without payment—although, probably rightly, without paying a carer's allowance. Think about those women who currently receive a carer's allowance of about £57 a week, together with the right to earn up to £100 if they can manage it. The effect of what I call heavy-end caring—by that I am talking about 50 or 60 hours a week—is that, first, it almost certainly breaks the health of the carer. All the experience of caring is that the help of the carer suffers seriously.
Secondly, the carer’s savings run down. She is usually caring for another family member, probably her parents or possibly the parents of her husband. In order to make their life tolerable, she is using her money. What savings she may have will help to keep them afloat as well as herself. Thirdly, she will suffer, as a result of heavy-end caring, increasing isolation, so that when she comes to need care in turn there will be few people able or willing to care for her.
Finally, as a result of all that, given her caring record, she has become in the eyes of an employer someone who is tired, has been out of the waged labour market for perhaps 15 years, has poor physical health and has perhaps suffered, as a result of bereavement, from depression. She is then expected to go into the labour market, but she is effectively unemployable. Even if she were willing, able, fit, healthy and financially buoyant to re-enter the world of work, it will be very difficult for her to do so.
The women who are being asked to stay in the labour market between 60 and 65 are precisely that group who are doing what I call heavy-end caring. It is caring that gets heavier as they get older, because the person cared for is getting older and is more likely to have Alzheimer's and severe problems of longevity. I do not have an easy answer, except to say that if we cannot—as we obviously should not—keep women's pension age at 60, I would like some age-related premium or some version of what my noble friend mentioned: some recognition of carers’ responsibilities.
We are too easily assuming that women are in the waged labour market and will stay there for up to an extra six years. That is true for men; it is not true and never will be true for women who expect and embrace with grace the heavy-end job of caring which, as I said, will make them poorer, possibly break their health, may leave them isolated and almost invariably unable to re-enter the world of work at 63 or 64, when the person for whom they have cared has finally died.
I hope that, between now and Report, my noble friend can in conjunction with us think of ways to address that, because I think that those women will find themselves in a very bad situation.
My Lords, one cannot help but sympathise with the case put forward by the noble Baroness, Lady Turner of Camden. I think it is what we would call the plumber’s knees problem. The noble Baroness, Lady Hollis, is addressing another issue entirely. However, I am concerned about the procedures that would have to be put in place to give effect to the provision. We already have a vast machinery of state tribunals assessing when people do this and when they are entitled to that. If we were to vary the state pension age, through whatever reasonable means, you can bet your bottom dollar that a bureaucracy of tribunals would grow up to implement it, just as we have had now for other areas. Therefore, this needs addressing; certainly what has been called heavy-end caring needs addressing. In the case of the terrible differential between people who work in very physical environments and those who do not, where there is clearly often an age-related difficulty, this does not seem to be the mechanism.
If I may, I put in my epidemiologist’s tuppenceworth on the prediction of whether people who live longer have age-related disabilities—or disabilities of long duration, which is worse. The evidence is extremely difficult to predict because it changes from cohort to cohort and has changed during the course of my research life. It is true that disease-free life expectancy is growing dramatically, and so is the number of disability-burdened years, although the rate of disability-burdened years may not be growing very fast. It is extraordinarily difficult to predict, because of the lifestyles now of people aged 40 to 60, what the rate of disease-free life will be in 20 to 30 years. We all want to live longer, and die faster, do we not?
What the noble Baroness, Lady Hollis, said was correct, but the Minister’s response was equally correct. It is extremely difficult to predict. However, on this amdendment, I worry about the bureaucracy that might be put in place to respond to such flexibility, but I recognise that we ought through some mechanism to address the early disability of people to respond to their own employment and that they should have the flexibility to stop and not be impoverished by stopping.
I echo the comments of the noble Baroness. One of our failings as a people is that, because people are decent, we try to provide for everything and clutter it up to the extent that the system becomes difficult and expensive to operate. I was interested to note, in seeking to check my state pension entitlements, that the office that you approach got them wrong; we had a pleasant correspondence. I hate to think, even as we stand, that in people’s combination of straightforward state pension, SERPS and whatever else they may have, the records are all over the place. We may sit here and think that it is lovely, but actually it is a shambles.
I can well imagine that, if you start adding all sorts of groups and special things out of decency, you will get, as the noble Baroness described, a huge increase in bureaucracy. It strikes me that pensions is one area that has suffered in this country from too much complexity. My view is that the issues raised need addressing, but that they will have to be addressed in a separate box through welfare arrangements.
Finally, I still take the view that when the arrangements came in after the war, the age of 65 then was something like 78 today in terms of equivalent fitness and health. I desperately want to see a decent state pension for everyone at the age of 70 that will lift them right away from dependency, pension credits and everything else. I should like to see things tidied up, slimmed down and done as cheaply as possible to achieve that as soon as possible. It strikes me that for the overwhelming majority, that is the need. Although there are cases of people who have done heavy work with physical demands and whose bodies have worn out, the great majority of people will be pretty fit until they are 70.
I thank the noble Baroness, Lady Turner, for tabling this amendment and for giving us the opportunity to debate a key concern about increasing the state pension age and longevity. I use the soft “g”, whereas I notice that the noble Lord uses the hard “g”. We probably differ on other things as well. The noble Baroness raised the question of what older people want and whether they want to work longer. Research has found that people want to return to work, whether for financial, personal or practical reasons, and will find ways to do so if they are motivated, have recent work experience and if illhealth does not act as a barrier.
In essence, the amendment is about whether it is fair for the state pension age to be the same for everyone irrespective of their circumstances or whether we should have a variable state pension age for certain groups. To echo what my noble friend Lord Flight said, one of our aims—which is in common with previous Governments—is to simplify an extremely complicated pensions system. The Bill contains various measures to simplify, from the abolition of the fiendishly complicated and fascinating PUCODIs, to which we will come shortly, the flexibility to consolidate additional pension—
There are only two experts in the room on PUCODIs.
On the serious point, simplicity is really important in this system. Clearly, we have tipped over the edge in complexity in the pensions system, as we have in the welfare system. Our state pension system has always been based on a common state pension age—albeit differentiated by gender, at least for the time being. Each exception that we add would increase the complexity. Including health conditions, occupations—and even, as has been suggested, where someone lives if we add that into the mix—would rapidly pile confusion on confusion. Introducing different state pension ages at a time when we are working to simplify benefits and pensions would make the system very complex and difficult to administer, and would take us further away from our objective.
The amendment raises questions about parity of treatment between those who could get their state pension from an earlier date and those who could not. Of course, the kind of illness or infirmity envisaged would need to be defined, as would the types of employment that it suggests be covered. There are, of course, some countries where people are allowed to retire earlier than the standard state pension age from occupations which may be classed as particularly arduous or dangerous employment, but who is to say what is arduous or dangerous? The other point we must note here is that in many of those cases, retiring early results in a person’s state pension being reduced, as might be expected for any pension scheme. Through her amendment, the noble Baroness, Lady Turner, shares our view that having poorer pensioners is not a desirable outcome, but to allow early retirement without reducing benefits could be very expensive.
Noble Lords will share the great sympathy that we all have for people who are in ill health, whether they have the misfortune to become seriously ill or are infirm. We also have sympathy and respect for the carers referred to by the noble Baroness, Lady Hollis— particularly for what she calls the heavy-end carers. I do not have an answer to that, certainly not today, but I will reflect on her comments. As Michael Marmot has shown, there are long-term differences in disability-free life expectancy between socioeconomic groups, and they need to be addressed. Noble Lords will be aware, however, that there have been improvements in both life expectancy and healthy life expectancy across all sectors of our society.
I regret that I do not have that figure to hand, but I can provide it later. I am sure that the noble Baroness has it to hand and that that is the point of her question, but I will confirm the exact figure.
The other point is on life expectancy across the regions. There are differentials, but it is important that life expectancy has risen in all regions and looks set to continue to do so. In England, in the 29 years from 1981 to 2010, it increased from 79 to 86 for men and from 83 to 89 for women. In Scotland, it increased from 78 to 85 for men and from 81 to 87 for women; and in Wales, it increased from 79 to 86 for men—the same as in England—and from 82 to 88 for women. There are differentials, but they are all moving in the same direction at roughly the same pace.
Likewise in terms of occupations, male manual workers have seen an increase of almost two years in their life expectancy at 65 between 1992-96 and 2002-05. Women manual workers have seen a one-year increase in the same period. Reverting to the point that we discussed under the previous group of amendments, there is no doubt that on average we are living longer and healthier lives than in the past. I shall not go through the figures that we discussed then.
When we come to what kind of support we can offer to people as they get toward the end of their working lives, I need to emphasise that we have developed a support network in this country, and we are going to transform it. Many people in this Room will be part of the consideration of the new universal credit. There clearly is support for people of working age with health problems.
With the universal credit, we have the opportunity to sweep away the patchwork of benefits and credits and to bring in a much more coherent and simpler system. That system can take the weight of the concerns of the noble Baroness. That is a better place to address the concerns underlying her amendment. For that reason, I do not accept that varying pension ages is the right way to support people who have ill health towards the end of their working lives, and I therefore urge the noble Baroness to withdraw her amendment.
I thank everyone who has contributed to this debate. It has been very useful because, while they did not care very much for my wording or what I was trying to do, they nevertheless acknowledge that there is a problem here and that there are categories of people who need special care regarding retirement in relation to their health and the type of work that they have done all their lives. I am grateful to the people who have raised points. I thank my noble friend Lady Hollis particularly for drawing our attention once again to carers. They are part of the group who has a lot of heavy and demanding work to do, and they need our support.
I also thank the Minister for what he said. He acknowledges that there is a problem but says that there is a different way of handling it. I shall read what he has said with some interest when I get the opportunity. In the mean time, I beg leave to withdraw the amendment.
Amendment 6 withdrawn.
7: After Clause 1, insert the following new Clause—
“Qualifying age for pension credit
(1) The Secretary of State must make regulations setting out the qualifying age for pension credit.
(2) The qualifying age for pension credit from 6th March 2011 until 6th March 2020 shall be set so that the timetable in Schedule (Graduated timetable: qualifying age for pension credit) has effect.
(3) After 6th March 2020, the qualifying age for attaining pension credit shall be set at an age that does not exceed the age that a person qualifies for the state pension.”
My Lords, I shall speak also to Amendment 11. I return to the principle that the manner and timing of any increase in the age of state pension payments must give people fair and proper notice and should not be disproportionate in its impact on particular groups. The Government’s proposals for accelerating the timetable for state pension age equalisation and commencing the move to 66 for men and women from 2018 provides a five-year or seven-year notice period, depending on whether you are a man or a woman. Under the Government’s proposals, however, the age of eligibility for the receipt of pension credit, which is targeted on the poorest pensioners, follows the women’s state pension age. Both the short and shorter notice for the acceleration of the equalisation timetable impacts the poorest men and women, who will have to wait longer to receive their pension credit income but with little time to prepare.
Pension credit in 2011 will be £137.35 per week for a single person, so a further increase in the state pension age of two years, for example, results in a corresponding increase in the age for eligibility for pension credit and will result in a loss closer to £15,000 for those affected. To get some sense of scale, in 2010 there were approximately 954,000 claimants for pension guarantee credit, of whom over 540,000 were women.
The amendment is intended to reduce the disproportionate loss that would be experienced by those who are the poorest and on the lowest incomes, and are the least able to adjust to the short notice from the accelerated timetable. The amendment would provide for a way of mitigating that disproportionate impact by allowing the age for eligibility for pension credit to track the original equalisation timetable set out in the Pensions Act 1995—that is, for it to rise more slowly. Those eligible to receive pension credit would do so on the same date between 2011 and 2020 as they would have done under the original timetable for state pension age equalisation. In this way, the beneficiaries of pension credit—men and women currently in their late 50s—would not experience the markedly higher loss of pension credit income that would otherwise occur. Amendment 11 reinstates that timetable for wholly pension credit purposes.
I repeat, because it is important, that the Government’s current proposal that the age for receipt of pension credit should track women’s state pension age, in line with their accelerated timetable, does not make a contribution to reducing the fiscal deficit in this Parliament, because of the flow of savings from 2016. Again, this amendment does not undermine fiscal stability in the long term. The state pension age will still rise in response to increasing life expectancy, although my noble friend Lord McKenzie and I would argue that the increase from 65 to 66 should commence in 2020, which would still maintain the course for the long-term fiscal sustainability of the state pension system. This amendment is about fairer treatment for the poorest and least well off who are in their late 50s and nearer to pension credit age.
I turn now to the justification for the amendment. The Government, in their impact assessment, identified key criteria against which they assess the timetable options for accelerating the increase of the state pension age for women and men, and consequently the impact on the eligible age for pension credit. One criterion was the effect on the fiscal sustainability of the state pension system and another was inter- and intra-generational fairness. This amendment does not undermine long-term fiscal sustainability or prevent progress on inter-generational fairness. However, it seeks to inject some intra-generational fairness in that it seeks to mitigate for the concentrated impact on the poorest group of people who had the misfortunate to be born in particular months in the 1950s.
Perhaps I may pause here to anticipate the point made by the noble Lord, Lord Freud, in response to Amendment 1, which I am sure will be influencing his thinking on this amendment too; namely, that once one has reduced the level of debt in this Parliament, one cannot afford to relax because there is still the long-term sustainability challenge. I agree that one cannot relax over that, but there are more changes in the pension system to come. The timing of the phases of other increases—to 66, 67 and 68—I am sure will be a debate of some substance. The adjustments that will be made to increasing longevity in private pensions are happening and will continue to happen because of the impact that will be felt in annuity rates. We know that, even where there are DB schemes, normal retirement ages are rising and we await the report of the noble Lord, Lord Hutton, on longevity and the Government’s exposure to fiscal liability over the long term.
These are the big battalion contributions to fiscal sustainability over the long term. It is not the treatment of women in their late 50s, or of the very poor who happen to have a birth date in some period in 1954, that is going to deal with that major challenge, which I completely accept, of long-term sustainability. We can banter about which political party or group had the better timetable—I still hold to my principle on any timetable—but I pay credit to the noble Lord, Lord Turner, because he relayed the narrative to the country that the state pension age had to rise. He took the flak and he drew the sting, which allowed politicians to debate it and to produce the policy changes that were required in that situation.
So there is an important argument about long-term fiscal sustainability. I continue to struggle with the fact that with those big battalions, which are important—we have some big debates to come—somehow a group of women born in a particular period in the 1950s has to be treated in a deeply unfair way for this country to be in a sustainable position.
The Government's figures confirm that the pension income loss for those men and women who face a more aggressively accelerated increase in eligibility age for pension credit is even more marked for those for whom receipt of pension credit is deferred for more than a year than would be the case under existing plans. If allowance is made for their lower life expectancy, because they are more likely to be in the lower socioeconomic groups, that loss rises even further to as high as 10 per cent of state pension income. I accept that the evidence shows that those in lower socioeconomic groups have also benefited from improvements in their life expectancy—although, as we have just discussed and as my noble friend Lady Hollis was sharp correctly to point out, not necessarily so greatly in their healthy life expectancy. That improvement is an argument in support of the general proposition that the state pension age needs to rise. It is not an argument to deploy to defend giving those on the lowest incomes so little time to adjust.
The men and women who will be impacted by the accelerated rise in the qualifying age for pension credit will have little opportunity to adjust to their loss in the time available. For men and women without private savings and dependent on pension credit, working may not result in any improvement in post-retirement income, because any resulting gain in state pension accruals could be offset by reduced pension credit entitlement. For women who will be dependent on pension credit, we have only to look at the difference in median pension savings between those of a 56 year-old woman of £9,100, which translates to £11 per week on a level basis, and those of a man, at £52,800, which translates to more than £60 a week, to confirm on those median figures how little prospect low-income women have of saving sufficient to cover their loss from the delayed receipt of pension credit. That is particularly so given all that we know about their labour market participation level, earnings, membership of pension schemes and caring responsibilities. We partly debated this under the previous amendment, but men who are dependent on pension credit face similar challenges.
Lower-income groups are likely to be less healthy and, if working, to have lower incomes and to be less able to adjust to the short notice by working longer and saving more. The Government's impact assessment shows that men and women born between 1953 and 1955 on lower earnings, with interrupted careers and dependent on pension credit throughout retirement, will suffer the greatest percentage loss in lifetime pension income as a result of the accelerated timetable.
The Government’s modelling shows that people who rely mainly on pension credit in retirement will lose proportionately more than higher earners, who can also carry on contributing to their private pension saving. A lot of those figures are taken from the impact assessment. If we relate them to different ethnic groups, people of black and black British origin have the lowest level of private pension and investment income: £46 per week compared to £155 for white people.
Forty per cent of pensioners of Pakistani or Bangladeshi origin and 29 per cent of black and black British pensioners are in the bottom fifth income group compared with 14 per cent of white pensioners. There will be a greater concentration of impact as a consequence of the increase in the age for eligibility for pension credit consequent upon the acceleration of the equalisation timetable. Minority ethnic groups are less likely to be saving for their retirement due to a combination of labour market patterns and other behavioural and information barriers. Consequently, they are less able to mitigate the loss in pension credit income. A person from a non-white ethnic group is twice as likely to be entitled to pension credit at the minimum age at which that benefit is paid, and labour market activity rates show that in the over-50 age group non-white ethnic groups are less likely to be in employment. I can do no more than quote from the Government’s own impact assessment, which states that,
“delaying the point at which the State Pension and Pension Credit become payable is likely to have a greater adverse impact on certain ethnic groups compared to others … This impact is likely to be stronger for those affected by a delay in Pension Credit income of more than a year”.
Going further into the concentration of the impact,
“disabled people are also more likely to be reliant on Pension Credit at minimum qualifying age than non-disabled people, there will be a proportionately greater impact for those born in 1954 whose entitlement will be delayed by more than a year”.
The impact assessment asserts:
“However, we consider this is justifiable in the wider context of the need to ensure that the state pensions system (including Pension Credit) is to be both affordable in the long-term, and provide a decent income in retirement”.
I am afraid that I do not think it is justification. It is not a justifiable argument for such an aggressive speed of increase in the qualifying age for pension credit consequent upon accelerating the equalisation timetable. Listening to the debate today, I am not aware of anyone in this room who is challenging the need to increase the state pension age in order to maintain long-term fiscal sustainability, but this amendment addresses the disproportionate impact that such an accelerated timetable has on the poorest, the disabled and ethnic minorities who had the misfortune for the purposes of this Bill to be born in certain months in the 1950s. I beg to move.
I thank the noble Lord, Lord McKenzie, for tabling this amendment and the noble Baroness, Lady Drake, for introducing it. It allows us to consider the role that pension credit plays in providing income-related support for those over a certain age. These amendments seek to keep the pension credit qualifying age at the existing timetable for women’s state pension age by proposing a new and separate age schedule that would apply to pension credit between March 2011 and March 2020. The effect of these amendments would be to break the link between pension credit qualifying age and women’s state pension age.
Yes, but it is being pulled together for men. That is the point of the 1995 proposition and, now, the acceleration.
The effect of these amendments would be to break the link, as I said. As the schedule proposed by the amendment would effectively follow the existing timetable, it would therefore see a divergence from the increase to women’s state pension age from 2016 as proposed by the Bill. The amendment also seeks to ensure that the pension credit qualifying age cannot be set higher than state pension age in the future.
As life expectancy is increasing for people at all income levels, it is right that we raise the starting point for pension credit in line with changes to women’s state pension age and, beyond that, state pension age. A key part of the Welfare Reform Bill that is currently going through Parliament and of the introduction of universal credit is to ensure that people of working age have the opportunity to do just that—work whenever possible. To ensure that we provide the appropriate work focus and work-related support for all those of working age, we will be setting the upper age limit for universal credit at pension credit qualifying age. Setting the pension credit qualifying age at an artificial point below women’s state pension age will therefore undermine this fundamental aspect of welfare reform.
The amendment also suggests that the means-tested help available through universal credit will not be adequate for those approaching state pension age, and this is not the case. Universal credit is intended to provide appropriate levels of support, including for those who, for whatever reason, are unable to work or have limited capacity for work. Universal credit will also provide for a more generous treatment of earnings, and it is not right to withdraw this support for people who wish to continue working.
To pick up the points made by the noble Baroness, Lady Drake, when she referred to the impact assessment, I should make clear that the stylised cases in the impact assessment are designed to show the maximum possible loss. Most of those affected will not experience such losses. The noble Baroness addressed the issue around minorities and disabled people. I accept that there will be differences, but we are determined, and we have various programmes now to do this, to tackle the labour market disadvantage that those groups have.
Given the proposed upper age limit for universal credit, the amendment is not particularly well targeted. The extent to which people may see any benefit will depend on their own circumstances and on those of their partner. I should also point out that as this change would require a concurrent but different rise in state pension age and the pension credit qualifying age, it would add complexity to the system which, as we discussed on the previous amendment, goes the opposite way from our intentions. It has the potential to create a very confusing message to give customers about qualifying ages and what benefits are available to them.
Pension credit is primarily a safety net benefit for those over state pension age. It has been set at women’s state pension age to avoid discrimination until men and women’s state pension age are equalised. There has never been an intention to raise the qualifying age above state pension age. It is clear that this amendment is intended to help those people who might be described as “vulnerable”—people who might be in ill health or who have been in manual jobs and are unable to continue working as state pension age increases.
I hope that the Committee will forgive me if I take the opportunity to answer the question raised by the noble Baroness, Lady Hollis, regarding the Marmot review. I have now been able to put my hands on those figures. She dropped a nought in the differences in life expectancy where the highest life expectancy, in Kensington and Chelsea, was not 17 years but 10.7 years above the worst, which was Blackpool, for men—
Perhaps the noble Lord will allow me to quote from the Strategic Review of Health Inequalities in England post-2010—the Marmot report, which states:
“In England, people living in the poorest neighbourhoods, will, on average, die seven years earlier than people living in the richest neighbourhoods”.
The report then refers to the graph in Figure 1, and continues:
“Even more disturbing, the average difference in disability-free life expectancy is 17 years … So, people in poorer areas not only die sooner, but they will also spend more of their shorter lives with a disability”.
The report goes on to state that even excluding the top 5 per cent and the bottom 5 per cent, the difference in years of disability-free life expectancy is 13 years.
I thank the noble Baroness for saving my team from having to write a letter, given that she has isolated the issue. We are playing with different numbers—10.7, 17 and 7. I think that we have sorted out what each means. However, the point remains that for all groups there is a movement in the right direction towards longer lives and for longer healthy lives for all groups—albeit that there is a difference within groups.
Except that the point established by my noble friend Lady Drake and others is that the cuts, if you like, in spending on pensions and pension credit are falling heaviest on the poorest women who will have the least disability-free life expectancy along with their male counterparts.
I need to come back to the point that working-age support systems are much better systems of supporting people, particularly by universal credit, than artificial manipulation of when pension age and pension credits click in. There is very little difference between the position of people who are just below state pension age and those just above it. We just happen to use this age as a useful justification of where we can draw the line. Just as there is little difference between the line at state pension age, so there is little difference between those who are 63 and 62 or 62 and 61. In benefit terms, the only difference is what help people might receive to get into or stay in employment. We are quite certain that we want people below state pension age to work if they possibly can. We cannot give up on these people. That has been going on too long. The right place for people below state pension age is on a working-age benefit, and universal credit, which will be available in 2016—although it is starting in 2013—will be the most suitable benefit.
It is important that we target means-tested help in the most appropriate way. State pension age is a fair way of separating out support for those of working age and of pension age. Ensuring that people get the appropriate work-related support and making work pay are essential to enable people to move out of poverty and build up sufficient resources for their retirement. For these reasons, I urge the noble Baroness, Lady Drake, to withdraw her amendment.
I shall try to pick up some of the points put by the noble Lord, Lord Freud. This amendment breaks the link between the state pension age and the pension credit qualifying age only until 2020 because the associated amendment puts a time limit on that. It seeks to replicate the 1995 timetable for equalisation because it is trying to address a problem created by the acceleration of the original timetable. It is not seeking to bind the Government’s hand once that problem has been dealt with. The amendment would allow the Government to restore the link between the state pension age and the pension qualifying age. In another place, in another debate, I might want to argue the merits of not doing that, but that is not what this amendment seeks to do. We have sought to avoid the complication of that debate. It is merely for a defined period to address this disproportionate income impact point from this accelerated timetable.
It is true that I addressed the maximum possible loss. I think I actually said that it would apply to people experiencing the full two-year deferral. However, even with a one-year deferral, one year’s worth of pension credit for the people we are talking about is a substantial amount of money. If I lacked precision in how I articulated the point, I do not think that it lost any merit because losing pension credit for a year when you are dreadfully poor is pretty painful. It just happens to be even more painful if you lose it for two years.
In terms of the disproportionate impact, there has to be something wrong with the argument that we have to accelerate this timetable because somehow it makes a major contribution to long-term fiscal sustainability, which I reject. In applying it, we look to the most vulnerable to make such a big contribution. We are saying to them, “Would you please forgo 10 per cent of your state pension income in order to contribute?”. This contribution to an argument about long-term fiscal sustainability does not hold up in detail under the microscope. It does not run as a narrative. It does not run as an act of fairness that the poorest, many of whom will be women, many of whom will be disabled, take the heaviest hit. The department’s own analysis shows that this measure would be disproportionate in terms of its ethnic impact.
Furthermore, these people will have a lower life expectancy. One of the arguments that the Government have run in defence of their accelerated timetable is to say, “Oh well, women in this age group will not be getting to their state pension age for maybe a year or two after they expected, but they are all going to live longer, so the total income they will receive over their lifetime is still a fair deal in relation to men”. However, you cannot run that argument with these people because they are far less likely to have that very long life expectancy, which is precisely why—I admire and am a fan of DWP impact assessments—the figures had to be weighted for the fact that the life expectancy for this group of people was likely to be lower, so the figure was raised to a 10 per cent loss. That makes my point, really. I do not have to do the arithmetic because it is there in the impact assessment.
Notwithstanding an argument about the disproportionate impact of the accelerated timetable on women in their late 50s, this amendment says, “If one drills down into the characteristics of the population group disproportionately affected, there is a really undesirable concentration effect on the very low paid and those with the lowest incomes”. I do not think that saying, in order to deal with that, that the pension credit lags behind state pension age up until early 2020 is a fundamental challenge to the principle that it is desirable that pension credit and state pension age go hand in hand. I will reserve dealing with that for another time. I think our argument is strong. I beg leave to withdraw the amendment.
Amendment 7 withdrawn.
My Lords, I have received a request for a rapid break for nefarious purposes. Therefore the Committee stands adjourned for five minutes.
8: After Clause 1, insert the following new Clause—
“Additional financial support for certain women
The Secretary of State shall by regulations provide additional financial support for women born between the months of July 1953 and September 1955 to include one or a combination of the following— (a) pension credit adjustment;(b) providing for women with serious illness;(c) by slowing the rate of acceleration for a particular group of women.”
My Lords, I declare an interest as a trustee of a pension fund for the National Assembly for Wales. I am not clear as to whether I should declare this at this particular point in the agenda, or whether I should do so at every occasion, but for the avoidance of doubt I will do so. There are five parliamentary procedures in this United Kingdom, and the one that I am used to would require me to declare an interest, and I hope that is the case and that it is the wish of this House that I do so as well.
This amendment is wide in its ability for interpretation, but very narrow in the group of people whom it affects. It is done that way on purpose. Whatever way you look at it, there is a particular group of women, in a particular age bracket, born between particular years, who are going to be adversely affected in a way that those who are outside that age bracket are not. It is that particular interest group to whom I want to address my remarks in respect of this amendment. The fact that this is the group who are accelerated more than anyone else is the reason for the amendment. I accept that, no matter what timetable you have for any acceleration, there is bound to be a group that will be more or less affected, and that there are bound to be some winners and some losers in that acceleration. However, as I described earlier, you could really not see a faster acceleration process in play than this, where a three-month increase in your age means a four-month horizon for your pension arrival date.
Already we have debated quite considerably the use of timetabling as a device by which to assist that particular cohort of people, but this amendment looks to provide support for particular groups. It does not specify which groups, clearly because there may be more groups that may be divisible in different ways, and there may be more groups than the Government can think of. Already this afternoon the noble Baroness, Lady Hollis, has described a characteristic that we could apply to the list, when she talked about her age-related premium in addition to JSA or ESA. It is not intended to do more than to provide a way for the Government to look at this particular group of women, who are finding themselves more disadvantaged than advantaged in the acceleration process that is going ahead.
It is rather like walking along a road with your colleagues and seeing the horizon in the distance, and, as you walk along, the horizon moves further from you, but the people who are walking along the pathway with you, who may be slightly older or slightly younger, see the horizon moving away at a different rate. It is the group that is seeing it move away furthest and fastest to whom this amendment is addressed. The impact assessment from the DWP quite clearly specifies that that group of people who are most disadvantaged will have the biggest financial hit. The summary of impacts says:
“A rise in State Pension age of one year is projected to decrease the lifetime pension income … by between 3 per cent and 5 per cent … based on DWP modelling … However, if they work to the new pension age”—
I shall come back to the mitigations that are already in place in the changes that the Government are proposing in the universal credit and the work programme—
“and save into a private pension, they would recover about half of this loss of lifetime pension income. For those individuals who will experience the maximum increase in State Pension age of two years, the potential loss is between 7 per cent and 9 per cent”.
Again, if you mitigate that by saving in a private pension scheme and working for those extra two years, you suffer a loss of about half of that. A one-year and two-year acceleration is quite different. If you follow my metaphor of moving along the pathway towards the horizon, those who are seeing the horizon moving away the fastest would suffer financially disproportionately to the others. It is that experience that I shall dwell upon in this amendment.
Some mitigation factors are already in place and there are some we hope will be in place. I raised this earlier in a question to the Minister, and I will continue to press the point that clearly a significant rise in and simplification of the state pension would make a huge difference to the mitigation that this acceleration would deal with. I can only quote what I see in newspaper reports that state that we should be looking forward to a new state pension that will be in place at roughly the same time when the changes that are taking place in the Bill will impact on people, and perhaps even in advance of that. I hope that the press articles that I have read are accurate and that they produce that maximum mitigation through a new state pension provision.
This Government are making two other provisions that will help. The first is the work programme, which will assist people in a manner which is most fitting to them to retain work, to be placed in work and to manage work, whatever is appropriate at whatever age people are at. The second is the universal credit, which is a long-awaited and long-needed change that will match the facts that people will value work, work itself has value, work is good for you and that will make work always pay. I am not as sanguine as some about people’s ability to accomplish change in seeking to work longer. I presume that we have all had the briefing from the Chartered Institute of Personnel and Development with the interesting statistic that 41 per cent of older workers plan to continue working past retirement in some capacity. That research was done last summer, so, although they have been aware that a change was about, a significant proportion of older workers are planning to continue to work on. Of course, 72 per cent of them said that they needed to for financial reasons, but that is perfectly acceptable, as the Minister pointed out. However, 41 per cent—and it is quite interesting that 41 and 72 do not add up to 100—want to continue working because they enjoy the social interaction and the self-esteem that they get from extra work.
I am not as sanguine as some about the ability of people to want to continue to work. Those who are coming up to a new state retirement age will be financially harmed by the acceleration in a way that other women will not be. That very particular cohort, particularly the March 1954 group, will be impacted worst by that acceleration and will see their horizon moving out further from them faster than anyone else.
The three methodologies in our amendment—as I have said, I am not wedded to there being only three; there could well be more—are as open as I could possibly draft them in order to give the Government the maximum opportunity to come back with some suggestions. If there is an acceptance that there will be an additional financial burden in the lifetime of this group of women, there are ways in which those adjustments can be made to the system.
In a sense, it is not a one-off payment, but a very restricted sum of money which would apply only to that specific cohort for as long or as short a period of time as one would wish it to. This amendment provides ultimate flexibility in the hope that the Minister will not reply, as he did to other noble Lords, that it will cost an extra £7 billion or £10 billion out of our £30 billion savings. It could cost only three shillings and thruppence if the Government wanted it to because there is openness in the amendment for them to do that. I am seeking recognition that a group will be financially disadvantaged by these changes simply because of where they are and the year of their birth.
We have already debated the issue of women with serious illness. Again, there is no specification as to the nature of the recompense; this is simply an opportunity to find a way through that, which is why paragraph (c) of our amendment, which reads,
“by slowing the rate of acceleration for a particular group of women”,
provides the ultimate flexibility. It could apply to a group of one or up to 500,000, which is roughly the extent of the whole cohort to which the amendment would apply.
It also provides a graduated approach. We have had already an example of an acceleration bubble from the noble Baroness, Lady Drake, with the snaky-type balloon, which we used to have and twisted into shapes, with an air bubble in it. This bubble will pass out and therefore be seen as part of the normal process. A very discrete group of people would be involved. This is like a bubble with a bulge. Those people who will be most affected are those who we are seeking to assist in this amendment. Therefore, I hope that the Minister in responding will accept, as I do, that work is good and will pay; that there are definitions of support provided by the Government which will assist in this process; and that there will be mitigation by people being able to work longer. However, a financial hit will be taken by a group of women that will be different from that of the group of women at your shoulder walking along that pathway towards that horizon. On that basis, I beg to move.
My Lords, I endorse the amendment and the thinking of my noble friend Lord German. As we begin to move towards the end of the deliberations on Clause 1, he has capped an interesting piece of architecture that has developed during the afternoon. The first pillar was set jointly, and possibly independently of each other, by the noble Lord, Lord McKenzie, and me. We are clearly the Stakhanovites of this game and we have set out to proceed by formula and on principle in redesigning the architecture of the table for the withdrawal of benefit or the increase in the state retirement pension. That is clearly one approach, which also has the consequence that my noble friend Lord Freud has already pointed out to the Committee, of substantial expense.
It will be interesting to see how further consideration of the Bill unfolds, not only this afternoon, but one way to mitigate that might be some conjunction of large figures in terms of income, some other benefits being reshaped or males being asked to pay earlier, if that were possible, to try to balance those large aggregates. I understand that that is at least one approach.
Then, if I may put it this way, there was the approach of the noble Baroness, Lady Turner, of looking at pension credit, because it is the keystone in the middle. That is also using a piece of architecture which is already in being. Because it is income-related, or means-tested, if you want to put it the other way round, that is a way to deal with it for a lot of people who, as we have all acknowledged in this Committee, are most seriously affected. We now come to the other side of the pillar in the suggestion of my noble friend Lord German of what might be termed a targeted scheme which, as he said, might cost three and seven pence, or thereabouts, if that is all that the Treasury could provide, but would be designed to look at the specific problem for an age group that we have all identified as being particularly heavily affected, although that is mitigable in certain cases to see what could be done.
It may be that, on reflection, that is the most sensible approach for the Minister. Certainly, his most sensible short-term strategy would be to say that we will reflect on these things, that there are problems and that we need to think further about how best we might deal with them. If I implied, in having bound myself and the Opposition spokesperson together as Stakhanovites, that my noble friend Lord German was in any way a slacker, the way that he set out the different options was appealing and, I thought, covered most of the field.
I throw one specific point into the pot for the Minister's consideration. I do so tentatively, not least because it breaks some of my precepts about differential arrangements, but I have always felt strongly that one of the impacts that is underdescribed and underconsidered in relation to state retirement, almost irrespective of age, is the substantial hurt that it represents not merely in the receipt of a benefit that is taxable, but in relation to the withdrawal of an obligation to pay an employee national insurance contribution, because that can have a substantial effect.
I remember looking at my payslip and saying that the withdrawal of the NIC is worth nearly as much to me as is my state retirement pension. In my case, that is on a 40 per cent rate of tax, but it is underdescribed as a factor. I leave this for the Minister's consideration in due course, but it might be that one way of doing that would be to say, not least because we are interested in maintaining employment wherever possible, given that this is a particularly hard-hit group of individuals that is relatively easily definable and quite small, that we might be prepared to waive the NIC contribution for the employee while they continue in employment until they reach the state retirement age, as if they had already retired.
I put that only as a consideration, but the Committee is wrestling with some dilemmas. We know where the problem lies, in a relatively small group. Other groups are affected—I am not trying to say that they are not—but we know that there is a particular problem for a small number of people. One can either adopt a large architectural solution that redesigns the system and may claw back all or part of the cost of doing so, or one can adopt a much more targeted scheme directed towards their particular problems along one or other of the lines that my noble friend so helpfully suggested.
My Lords, I support the thrust of the amendments in much the same way as has the noble Lord, Lord Boswell. Whether this is the right way forward I do not know, but we have all identified that there is a problem. There will be a group, particularly of women—although there may be some men who currently would come under pension credit—who are among the poorest, because they are eligible for pension credit, and who have very reduced employment prospects and very poor life expectancy. That goes together. They are poor, their health is not good and they would normally have been eligible for pension credit.
We have heard various ways of looking at it. We could try to target the group or we could target their income. The question is who we should pay and how much we should pay in order to produce a more decent approach, if you like, to helping this group of women. Who should we pay? I suggest that we already know and we already have the architecture, to borrow a phrase from the noble Lord, Lord Boswell, in place—the structure of pension credit. We know which women would have qualified for pension credit, were the existing rules in place. This builds on the proposition of my noble friend Lady Drake. To whom would it therefore be paid? To those women—and perhaps men—who would have qualified for pension credit under the existing structure. No new structure would need to be identified, nor would we have to dismantle the way that we currently do it.
How much should we pay? As I argued earlier, I myself go for an age-related addition that might be something in the order of £30 for a single person, which would not take you up to the pension credit level of £132 but would at least take you up to the BSP figure of £97 from the current figure of about £65 as a halfway house, recognising that you cannot simply try to reinstate by amendment the existing system as is.
That is one possible way forward, using the pension credit structure to identify the costs but paying a figure actually at the BSP. I am not able at the moment to identify what the costs of that would be—I will do some work on this. However, given that there seems to be consensus around this place, it would be helpful if the Minister, who has this facility, could write to us before Report and tell us what such a proposition might look like and whether it is a feasible way to help those women who are least able to bear the changes that are going to be thrust upon them by law.
I would like to comment on Amendment 8, tabled in the name of the noble Lords, Lord German and Lord Stoneham, which has my sympathy. I concur with the comments made by the noble Lord, Lord German, that we are clearly all concerned with the consequences of the accelerated timetable. The noble Lord, Lord Boswell, referred to us all looking for different architectures with which we can address this matter, and one should never close one’s mind to architectures if one can get the outcome that one desires, or at least progress towards it.
With regard to the legs to the amendment—(a), (b) and (c)—on the basis of what I said on my Amendment 7, I wholeheartedly agree with making some pension credit adjustment but it would need to be made for both men and women, otherwise you would simply address the issue of poor women, not poor men.
On the question of providing for women with serious illness, those who are seriously ill clearly believe or feel that they have a payment that they have built up and are entitled to under the state pension system that has been withdrawn with little notice. They will have absolutely no prospects of adjusting to their loss, and are unlikely to benefit from the argument that they will live longer. I imagine that there would be some complexities in trying to administer a provision that focused on those with a serious illness, and I take my noble friend Lady Hollis’s point about who, and how much, should be paid.
It may be that the easiest solution is still to look at decelerating the timetable. As my noble friend Lord McKenzie said in responding to the amendment of the noble Lord, Lord Boswell, we are all keen to make progress and should stay open to looking at timetables. My noble friend and others have revealed how the timetable has an accelerating effect. There are those who lose for a year, those who lose for up to 18 months and those who lose for up to two years, so there is an accelerating impact in terms of numbers of people affected. Still, I would not want to fall out over architecture if there was a way of moving forward to get the kind of outcome that we all seem desirous of achieving—those of us moving amendments, anyway.
I thank my noble friend Lord German for tabling the amendment. We have covered a lot of the ground in relation to it already, so I shall try not to be repetitious. We are talking about what has been variously described as an acceleration bubble, a moving horizon or a squidgy balloon—as the noble Baroness, Lady Drake, said. We are effectively looking at concessions for women born between July 1953 and September 1955.
I am not in a position at this stage to provide any additional information about discussions on a single tier, which I referred to at Second Reading, but one of the issues here is clearly that when one looks at the complexity of the architecture, one has to have an eye to whatever might or might not emerge from those discussions. We have already talked about freezing or delaying the increase in the pension credit qualifying age for people affected by the changes in state pension age. We are not going to make a song and dance about technical drafting here, although the noble Baroness, Lady Drake, made the point about the application of the amendment to women, when it would actually have to apply to men. However, let us put that to one side.
The issue that I aimed to emphasise in the previous discussion was that pitching the pension credit qualifying age at a point below the state pension age for a specific group would undermine fundamental welfare reforms. However, it is not about just the structure—and I accept that this is about a temporary change—or purely the money; it is complex for customers and complex to administer. That is one of the reasons why that solution is difficult, if not undesirable.
In response to the request of the noble Baroness, Lady Hollis, for me to write to her on the costs of paying people in between the old and the new pension ages, I am happy to look at those costs and to write to interested noble Lords. I imagine that that includes most of us in the Room.
I move on to the issue of serious illness and emphasise that we have great sympathy for those with ill health, including those in this particular cohort of women. However, I must point out that help and benefits are already available for people with health problems and I do not therefore accept that we need to provide additional financial support, whether that is in the form of a payment above what we already pay out or some bespoke pension age arrangement.
The final option suggested by the amendment is slowing the acceleration of the pension age increase for these women.
I can assure noble Lords that, when we were considering how to bring forward the increase to 66, we looked at whether we could start that change for men slightly earlier than for women, to avoid altering women’s state pension age before 2020. The reason that we have not done this is because it would be unfair to increase the difference in treatment between men and women. It would also be unfair to prolong the difference in treatment beyond the period already agreed. I will take this opportunity to explain why, and I am picking up the question raised by my noble friend Lord Boswell earlier in the afternoon. The equal treatment directive allows the setting of the state pension age to be a limited exception to the overarching rule that men and women must be treated equally in social security matters. This exemption, or exception, is only temporary to give member states time to adjust their state pension ages so as to bring women’s state pension age into line with men’s. As we know, the legislation in 1995 set out a timetable for equalising the state pension ages between 2010 and 2020, so anything we do now will be measured against that timeline. That is why we decided that we must increase the state pension age to 66 only after women’s state pension age has reached 65. I therefore urge the noble Lord to withdraw his amendment.
My Lords, when I started writing this amendment, I was trying to answer what seemed to me a fairly straightforward and simple question. There is a group of women, born between these years, who will suffer financially more than those who are roughly the same age on either side of them. The question I was seeking to answer was whether the Government will find a way of helping them. It is as simple as that. I was seeking to give the Government as much of an open hand as they wished, in order to say that they recognised that some of the people in this cohort will be suffering financially more than others, simply because of the date of their birth, which was the factor I wanted to take into account. I was not wanting to dwell on the method of operation, but I was seeking to find a way in which the Government might come forward with some opportunity for making sure that they redressed that financial imbalance in a way which they thought was reasonable, effective, and did not cost as much as the £7 billion or £10 billion which the Minister has already adhered to. I hope that, during the course of the future weeks before we reach Report, the Minister will reflect on that matter. There has been a widespread agreement around this Committee, from all sides, that there needs to be some form of redress for a particular group of women in a particular way which needs to be defined, and perhaps the department can look at that. I hope that the Minister will think of coming back to that matter by Report, with a view on how that might be addressed.
Amendment 8 withdrawn.
Schedule 1 : Equalisation of and increase in pensionable age for men and women: consequential amendments
Amendments 9 and 10 not moved.
Schedule 1 agreed.
Amendment 11 not moved.
Clause 2 : Abolition of certain additions to the state pension
12: Clause 2, page 3, line 8, after “force” insert “or 6th April 2012, whichever is the later”
For noble Lords who were anticipating a debate around PUCODIs, I advise them not to blink. This is just a gentle probe about the effects of getting rid of PUCODIs; hopefully, we communicated the nature of the inquiry to the Bill team to make it a bit easier on the Minister’s time. Clause 2 removes the right to receive payable uprated contracted-out deduction increments from 6 April 2012. It does not, as I understand it, affect awards already in payment, so the noble Lord, Lord Boswell, can relax, although I understand that he will be CPIed on it in the future. I imagine that at the moment it will buy him a thimbleful of petrol, if that.
Let me be clear: we support this measure and consider it to be a sensible tidying-up. My probe is about what we understand to be the range of PUCODIs that would have been payable but for this abolition. The notes accompanying the impact assessments point out that the overall saving is less than £1 million—pretty small beer. For those currently in receipt, we are told that 80 per cent receive less than £1 per week, and for inherited rights the mean is about 60p per week. However, we are also told that the maximum payment is £14 per week, and £6.30 per week for inherited rights. Removing a few pence as a top-up is one thing, but taking away £700 per year is potentially something else. Perhaps amounts build to these levels only after a period of time, so maybe it is not an issue. Nevertheless, I should be grateful for the Minister’s comments about the spread of what would otherwise have arisen, to see whether there are any issues there or whether it really is de minimis.
My Lords, the noble Lord, Lord McKenzie, has been kind enough both to mention my name and to tempt me. I shall disappoint the Committee, I am sure, by indicating that I have no intention whatever of explaining how PUCODIs work or how important they are to one’s lifestyle. All I can say is that I indicated at Second Reading, and a further reading of my recent annual pension statement appears to confirm this, that I think that I have one. However, rather in the manner of one of my masters at school who conducted a survey among the masters’ common room into the wearing of long johns in the winter and found that a significant number of people did not know, I am not absolutely sure that I have one. For the avoidance of doubt, it certainly is not in the range of £14 a week; it is much lower than that, although it is more than £1.
I simply make the point that this is an example of complexity and I am sure that we need to remove it. I am pleased to see the noble Lord who moved the amendment nodding to that. It is an example of how even people who know a modest amount about the system do not know everything that is applied. It creates problems that are almost in geometric progression: the more complex the system is, the less easy it is for people to understand it and the greater the chance of making mistakes. As one building block of the programme of simplification and consolidation, this is a modest but essential measure. I look forward to the Minister’s explanation—if he understands PUCODIs too.
My Lords, I really am grateful to the noble Lord for giving me this incredible opportunity to talk about PUCODIs. I have to quote the noble Lord himself from 2007, when he said:
“This is a technical area and, despite the hour, I hope that the Committee will bear with me as I explain”.—[Official Report, 4/6/07; col. 875.]
He then gave an explanation, but I am convinced that, to his disgrace, he has forgotten every single word that he said to the Committee.
The essential point regarding the payable uprated contracted-out deduction increment is that these payments are very small. As the noble Lord pointed out, 77 per cent of recipients get less than £1 per week. Where it is in payment, it represents 0.6 per cent, on average, of an individual state pension income. Most of the people in receipt are women—93,000 out of 118,000 people are women—and the average received by women is slightly higher than by men. Bluntly, though, both are around 20p per week.
Around 6,000 of the 9,000 in receipt of inherited awards are women. The average received by women is again similar to men: around 30p per week. The original policy intention of the PUCODI was to ensure parity between those who were contracted out, and those who were not. However, as noble Lords will be aware, contracting-out on a defined contribution basis is being abolished from April 2012. The proposed abolition of new awards of PUCODIs for members of such schemes is linked to the abolition of defined contribution contracting-out. I shall not go into the detail of the timings, except to assure the noble Lord that it has never been the Government’s intention to bring the proposed legislation into force before 6 April 2012.
I am not sure that I have a reliable spread, although I am very happy to write making clear what the spread of payments is. However, given the averages we are talking about, there are going to be fairly few outliers. The point is that, as the name suggests, there is an element of choice for people when they take them. They are delaying payment of their contracted-out pension, and there is therefore an element of choice. If the loss is too much, they can start to take it, so there is an element of market balance for the outliers. I will write about that very specific point beyond the averages.
As the noble Lord said in his introduction, it is not his intention to do anything more than find out some of this detail, and I am sure that he will be pleased to withdraw the amendment.
I thank the Minister and the noble Lord, Lord Boswell, for participating and will be delighted to withdraw the amendment. I will be very happy to receive a letter in due course. I remember reading out a script in 2008 or 2007 when I think it was the noble Lord, Lord Skelmersdale, who was leading on the opposition Benches. He assumed I did not understand it because I read the script very quickly. I beg leave to withdraw the amendment.
Amendment 12 withdrawn.
Clause 2 agreed.
Schedule 2 agreed.
Clause 3 agreed.
13: After Clause 3, insert the following new Clause—
“Right to apply for amalgamation of earnings from multiple sources of employment for Basic State Pension accrual
A jobholder who in any week in a tax year—(a) is employed in more than one employment,(b) whose earnings do not exceed the lower earnings limit in any individual employment or self-employment in that week, and(c) whose earnings in aggregate reach or exceed the lower earnings limit in any week,shall be deemed to have earnings equivalent to or exceeding the lower earnings limit for the purposes of accruing entitlement to the Basic State Pension in that week.”
My Lords, I hope the wording of this amendment is reasonably clear and self-explanatory, although I am absolutely sure that it is technically deficient, but I do not think that matters for the purposes of Committee stage. I think we all agree that it is essential to bring as many men and women as possible into the state pension system. That has been aided by past changes, which we mentioned earlier—for example, the Labour Government’s changes, which were carried with all-party support. The number of qualifying national insurance contribution years was reduced to 30 from 39 for women and 44 for men. Other groups, including carers not doing heavy-end caring but caring for 20 hours or more, were brought in. We allowed the amalgamation of hours of caring to bring people, including grandparents, within the basic state pension system. In all ways, we have sought to bring more people within the basic state pension system.
However, there is leftover business, which this amendment seeks to address. I am very grateful to the Minister, who has taken a very constructive attitude towards this issue, and I am hoping that he may have found a way through for us which has been unavailable to us in the past. As a result of all the changes to the national insurance system, we expect that about 90 per cent of men and about 90 per cent of women will have full coverage of the basic state pension certainly by 2020 and maybe earlier than that. However, there is still a key group of people, among other small groups, who remain outside the basic state pension through no fault of their own, who are in the waged labour market, especially women with a portfolio of mini-jobs. Individually the jobs may be six hours or eight hours and the women may hold three or four such jobs together, but at present you are not allowed—and we do not have the technology—to add those hours and those wages together to bring somebody into the NI system. Oddly enough, if you are a lone parent and are entitled to tax credits at 16 hours, you are allowed to add those hours together for tax credit purposes but not for NI purposes, except that the tax credit itself would then give you a right into the national insurance system. So there was a rather complicated loop through for some women in the past, but we were not able to do it directly.
The stats are flaky, and we raised this issue at Second Reading. My latest information—which may have been superseded by the Minister’s information—is that there are some 50,000 people, mostly women, with more than one part-time job. For upwards of 15,000 women, the summation of those jobs might take them into the national insurance system and therefore into the state pension if they were able to add those jobs together. At Second Reading, the Minister helpfully reminded us that some 250,000 women might be coming into the mini-job scenario in the future under universal credit who might find themselves in a similar situation. The problem is likely to increase rather than decrease.
Why do we need this change? I suggest three reasons. First, it seems to me entirely fair that women—and they are nearly all women—should qualify for the full state pension by the fact that they are in the labour market, whether waged or unwaged, especially given their precarious financial situation. It seems unreasonable, if you are working 16, 18 or 20 hours, however that is split up, that you should be denied access, which you have earned, to the national insurance system and therefore, above all, to the state pension system, particularly given women’s precarious financial situation which remains, even though we have made it much easier for women, along with men, to enter the NIC system.
Secondly, particularly in rural areas, it is quite difficult for women to find a full-time job of over 16 hours a week if they wish to do so. I come from Norfolk, and the women I know in the more rural areas of the county mix and match according to season. For example, their jobs may include picking mushrooms, cleaning boats, caravans or private houses, being a lollipop lady, making sandwiches during the summer season or doing bar work. It is a mix-and-match situation. Even if women wish to build a mini-job into a job of over 16 hours a week in a clean, simple way, they are not available to very many women, particularly in rural areas, where decent jobs are in very short supply. All they can do is add another mini-job to their existing mini-job, and their portfolio may eventually take them over the 16 hours.
Those mini-jobs are extremely valuable to employers in giving them a resource of very flexible labour. It may be a couple of evenings of bar work when there is the most customer demand, it may be part-time work at a newsagent’s or launderette when there is the most demand, or it may be work in a shop or a supermarket where there is the most demand. To my knowledge, a number of employers keep an employee’s hours under 16 hours in order to avoid paying the NICs that would become due when she goes over. Receptionists have told me time and again that their hours are capped quite deliberately by their employer.
Perhaps I may reiterate. The first reason is that, if you work the hours, it is only fair you should be able to come into the national insurance system; the second is that, for many women, a mix of mini-jobs may be the only way that they are going to be able to put together an adequate or appropriate income for themselves, and it is a useful form of flexibility for the employer.
The third reason was advanced by the Minister, which is that the whole thrust behind universal credit, which I strongly support, is that work pays and that six hours pay more than four hours, 10 hours pay more than six, and 16 hours pay more than 10. At the moment, as your Lordships will know, you may get a disregard for the first two to three hours of work, particularly if you are a lone parent. At 16 hours, you will then click into adequately paid work because tax credits will double your minimum wage and therefore your take-home pay, but between two to three hours’ work and 16 hours, there will be 100 per cent deductions from your wages. That is an incentive either not to work or to go into the fraud economy. I would not like to speculate on which of those women choose. For the most part, what is clear is that the noble Lord’s strategy of a universal credit will reward and encourage women to go into part-time jobs. Those mini-jobs may be bundled together into a portfolio of mini-jobs, or may they lead on to a fuller job in due course, particularly as women’s children get older. However, it is essential to universal credit that work pays, even in mini-jobs, because we know that the best predictor of a full-time job is when someone had a mini-job the year before.
Given that, and for the purposes of universal credit, the Minister will need to have all the information from the mini-jobs coming into the system in order to calculate the universal credit. It therefore seems to be perfectly feasible, which it has never been before, to send back to employers as well as to employees the information on whether there may be any national insurance consequences. Then there is the question of what should happen after that because the other disincentive and barrier to bringing women with a portfolio of mini-jobs into the national insurance system and therefore the state pension system has been not only the fact that we have not had the computer information, but the problem of divvying up the impost on the employers—some of whom may have been paying for six or eight hours’ work—regarding who pays what proportion of what NI. Given that there will be a computer system that brings in that information from employers—from possibly two, three or four sources—and will put it together for the individual to calculate the universal credit that may be payable to a woman who is below the universal credit target income, we can obviously do that on a technical basis, but how should we do it?
My suggestion—which was prompted by an e-mail from the department, for which I was grateful, because it helped to clarify my thoughts—is that for the purposes of NI, we should treat the bundle of mini-jobs exactly as if those hours and earnings had been acquired by a single job. In other words, if the woman earns above the lower earnings limit of £5,200 or so, but below the earnings threshold of £7,450, she will be credited in, as she would be now if she were in a single job that paid between those amounts. If she earns above the threshold, and if she is working 16 or 18 hours and therefore pays national insurance, because her hours from her mini-jobs put her in that position, she should be treated in the same way. As we now have the technology, we can then debit back to the employers their pro-rata contribution. However, the noble Lord, Lord Freud, may know a more acceptable way of handling this than I have come up with, but it seems to me that it would be fair to treat a portfolio of jobs in the same way as if a person had one job. To bring her into the state pension system, she should also be treated in the same way for the purposes of paying national insurance.
I hope that the Minister, who has been very helpful and constructive on this so far, and who is well appraised of the situation, can tell us how his thinking has been developing on this because if we want to make universal credit work, and want work to pay, an important incentive for women will be not just the wages they earn through those mini-jobs, but the fact that in the long run, I hope, they will be entitled to a state pension. I beg to move.
My Lords, I shall respond briefly to the noble Baroness, Lady Hollis, who has performed a service to the Committee in raising this issue. My immediate reaction, not least as a former small employer in the agricultural business employing casual labour and the kinds of people who she rightly described from her Norfolk experience, is that we need to think about how this burden should fall on employers if we are to do it. I shall come in a moment to the other side of the argument, but the Minister will have to tell us how this can be done. He will also need to reassure us that, even if perhaps it should not, it will not in practice act as a disincentive to employers employing these people. That is partly on the administrative side, as well as being the effect with regard to cost uplift. I am not for a moment suggesting that the right thing is for people to go into the irregular economy or that in some way we should find some kind of special deal for them because that is not what the noble Baroness is saying. However, we need to have at least some assurance that it is not going to create problems for employers, that it is manageable and that it will not have malign economic effects.
On the other hand, the noble Baroness is very much on to a point of substance. We have mentioned the word “problem”; I appreciate that that was not the context of what she said, but we should not regard part-time employment as a problem. It is a problem only if, when people would choose to be working for longer hours, it does not escalate into being able to do so, or they have not got the right bag of skills or their remuneration package is too low. We should welcome part-time employment with open arms, along with the flexibility that it brings. That is important and positive, which is why I hope that the Minister can come up with a solution.
I have one more thing to say, which is not meant to be threatening to him or anyone else. My knowledge of employment law has somewhat faded over the years and I am not too good on the equal treatment directive, but, looking at this from the perspective of human rights law, which I know a little more about from recent experience, and equality, if we do not come up with a system that provides the same functional opportunity for people who are working the same number of hours but for a number of employers as compared with those who are working for one employer, we are at some risk of being accused of discrimination. The Minister has to find a workable answer to this.
I support the amendment. It is related to the amendment that we will discuss in a moment about including part-time earnings to qualify for NEST. This is an important issue, and we need the Minister to look at it with a view to recognising the fact that part-time work is growing and is going to grow. There is a lot more out there in the unseen economy than we probably realise, which should be revealed as we move towards the universal credit system. We must therefore address it. As an employer myself, I have seen discrimination happen over the years. People deliberately keep employment below a certain limit so that they can avoid national insurance, and in future they will be doing this on pension contributions as well. This needs to be addressed.
I accept that there is an administration problem, but systems are improving. We should be trying to address this problem in the light of that. Because it is linked to the problem that we will be discussing on a later amendment, I am very sympathetic to this one.
My Lords, my noble friend Lady Drake and I have put our name to this amendment because we support its thrust. Having heard my noble friend, I gather that, perhaps unsurprisingly, she is even more ambitious for this amendment than I took it to be on first reading. It is entirely consistent with the progress that has been made in crediting people into the pension system, in any event, over many years. It is highly relevant—we heard from the noble Lord, Lord Stoneham, and my noble friend Lady Hollis about the growing importance of part-time work in our economy.
When I first read the amendment, I thought that its thrust was to say that when you aggregate employment earnings, if you are above the lower earnings limit, you get credited in. That in itself would not require any payments from the individual or any payments on behalf of any employer. That, at least, would be progress from where we are. There are arrangements that you have to aggregate if you are within associated companies, but that is a separate case.
If it is possible, as my noble friend suggested, perhaps in discussion with the noble Lord, to go further and say that we could aggregate and then work out what the employee and employer contributions would be and how we divvied that up across employers, then that would be a significant improvement and an advance. That is not only because of the state pension arrangements, with credited and contributory benefits in any event, but for the point that the noble Lord, Lord Stoneham, made about auto-enrolment. If we can aggregate and reach qualifying earnings, particularly if qualifying earnings are going to be pitched at the primary threshold, or at the secondary threshold, which I think is the same thing at the moment, then we can also seek to ensure that people on part-time earnings who would not otherwise qualify in respect of a single employment could, on some basis or another, by aggregation and then divvying up across employers, be entitled to auto-enrolment. At its most basic, lowest level, the ability to aggregate and credit in, for the purposes of the state pension, would be a valuable gain. To be able to go further, as is the ambition of my noble friend, would be a very considerable advance, and if the Minister’s command of technology enables him to deliver on that, we would all be delighted.
My Lords, I am very grateful to the noble Baroness, Lady Hollis, for raising this matter. Clearly this debate has been conducted before, although I was not present, but there is a potentially a new context for it. The fundamental issue of the aggregation of low earnings from multiple part-time jobs and how they could be made to qualify for basic state pension has been a matter of concern to her for some time. It was considered by the Pensions Commission and during the passage of the Pensions Act 2007.
Like her, I am keen to encourage mini-jobs, which I think are not just good in themselves for people in supplementing income, but are an invaluable stepping stone which we have made difficult for people to use in the current welfare system. A system that encourages that process and takes it out of the informal or grey economy and into the proper economy, will be immensely valuable for many people. What I am going to say at this stage and in this debate will be rather correct, in the sense that, in the present situation and in the context of our present systems, it is not be possible to go ahead with something like this. Until we have a new system defined, laid out, and understand its technology, we will not be able to look seriously at what we can do here, and it is an immensely complicated issue in practice. The structure of this answer may be negative as I go through it.
Thank you, cautious is a much better word. It will be somewhat cautious, but I will make a commitment at the end of it, based on what might be achievable later.
I start saying that many of the changes that have been made have already reduced the problem, and I know that the noble Baroness would have been involved in making those changes. I am thinking in particular of the reduction to a 30-year contribution making up a pension. The estimate now is that in only a few years’ time 90 per cent of women and men—both genders for different reasons—reaching state pension age will be entitled to the full basic state pension.
The noble Baroness and I talked about the figures. I referred to about 50,000, but we have had another look. About 65,000 women and 15,000 men in the whole workforce have two or more small jobs, which are individually below the limit but together take them about the limit. If the universal credit does its job, we are looking for an expansion in mini-jobs; so that should be a growing figure, which would be desirable. The 30-year contribution level has made it less of a problem because it means that someone can miss out on national insurance contributions and credits for almost 20 years of their working career, yet still get a full basic pension. That is why the figures have reduced so much.
I also point out that if it is not done carefully, many people would be worse off as a result under the proposals. Many women who care for children or a disabled person would be credited with national insurance contributions anyway. Under the proposal, they would have to pay national insurance for little or no gain. Nor would it help people who get working tax credit to supplement low earnings from such jobs because they, too, get national insurance credits already. I am trying to say that this is not the most simple of things to introduce given the different pressures.
My noble friend Lord Boswell was concerned that it would not help employers offering this kind of work. Clearly, within the existing system, aggregation would be extremely difficult and disproportionately costly for employers. There is no straightforward way under the existing system to aggregate earnings under the national insurance contributions system—the aggregation and the calculation would be difficult; the reporting, collecting and so on would impose a lot of administrative burdens. That is clearly why this has not had purchase in the past.
I do not want to sound overcautious. This is an idea on which the noble Baroness seized immediately that she read the universal credit paper. The point is very simple. When we have a real-time system, a lot of things that are simply impossible today will become possible. This country’s welfare system will undergo significant reform; we will have a very different system in the future.
I will make the commitment to look, as we develop the technology for this system, very hard at making sure that it incorporates the flexibility that would allow us to look at achieving some of these things. I do not think that there will be one magic wand and we are free. There are a lot of issues—I have tried to point out some—regardless of technology. But we can make sure that technology does not become a barrier for us to look at this in a new way. If it works and makes sense, clearly, we will be able to pursue it, but not in the context of the Bill. I therefore ask the noble Baroness to withdraw her amendment.
My Lords, that was probably superfluous to requirements, but I thank all noble Lords who have taken part in this short but interesting debate. The issues were fully aired and it suggested to the Minister that there is an understanding of the issue and the concerns and difficulties—I admit that there are difficulties—attached to it, as well as the need as far as humanly and technologically possible to address them. I am very grateful to everyone who took part.
I am intrigued that the figures have gone from 50,000 before the Recess to 65,000 after it, which shows how quickly the problem is growing, but I am grateful for the later information. I recognise that many of the women who could otherwise be covered by a proposal like this, were it to be implemented, are already partly covered by other arrangements that have occurred over the past 10 years or so. I remind the noble Lord that one of the changes that I accepted—I was in no position not to—was that we reduced what used to be called HRP to when the youngest child was 12. At 12, it stopped. In the past, it had been 16.
One of the things we have not, perhaps, brought into this debate—I was trying to get my head around it and I cannot usefully put any stats to it so I did not run it earlier—is that many women with a youngest child of 12 to 16 and so on have to manage work with continued responsibilities to their children which in the past HRP would have stopped. There is also the question of elder care. Many women who want to do part-time jobs will do unsocial hours because their partner will be keeping an eye on their children, who they do not wish to leave at home, who it would possibly be illegal to leave at home, but who are none the less not at school. Those unsocial hour jobs tend to be short jobs or mini-jobs. They are an evening in the bar, in the cinema as an usherette or very early or very late hours cleaning. I am surprised that we have not had legal challenges of the Government’s assumption that lone parents of children not just of five but even of 12 onwards are not liable for their care and attention. It suggests to me that this group will find mini-jobs one way out of the dilemma that we have given them, as well as all the rather better things that have happened with reducing the number of years you need to come into the NI system. There is a potential area there that we have not yet been able to track very far that may grow, particularly if there are JR problems associated with leaving children of 12, 13 or 14 unattended at home. We have already had babysitting issues in the court. Mothers have been strongly criticised by the judicial system for leaving their children at home at that age. If we can go further along this line in being able to find small slices of jobs that better fit around the need for childcare where HRP no longer applies, it would be valuable.
I accept the Minister’s assurance about universal credit and understand that it is not technically possible for employers or the department without the technology underpin that universal credit will provide. If universal credit is to work, virtually all the information the Minister will need to be able to make this call will be in the hands of the department, whether under a revised NIRS2 system or whatever, I do not know. I would like to see such women come within the BSP pension because they have earned a way to do so. As the noble Lord said, it is not just out of fairness to them, because they have the earnings; it is a way of producing a stepping stone—a ladder if you like—into further opportunities. The longer women stay away from the labour market, the harder it is for them to re-enter. The more we can make it easy, attractive, available and accessible to them, the more they will come in. They want to do it, but they want to make it commensurate with their family responsibilities and childcare. I think this is one way to do it, and I am trusting, as I am sure I can, to the Minister’s commitment to the values of this and his determination to make the technology work. I beg leave to withdraw the amendment.
Amendment 13 withdrawn.
Schedule 3: Consolidation of additional pension
14: Schedule 3, page 21, line 4, after “date” insert “, not later than 6th April 2025,”
My Lords, we are back on a couple of probing amendments. In reverse order, Amendment 15 is merely probing whether the specified date would always be at the commencement of a tax year. I can see that it could be organised this way, but is it inevitable? If not, then something along the lines of this amendment would be appropriate. Amendment 14 is a more substantial probe, though I see that the date has come out as 2005, rather than as 2025, which was originally intended. It is not particularly significant, because it was just a peg on which to hang a question.
Clause 3 introduces Schedule 3, which changed some of the provisions in the Pensions Act 2008 concerning the consolidation of the additional pension. The idea is, at some point in time, to effectively bundle together the various contracted-out rights, and to apply actuarial factors to smooth the disparities in entitlement. We obviously support this approach, but as the notes to the Bill set out, a consequence of smoothing in cash-flow terms is that the Government are likely to pay more earlier and less later than under the current system. I understand that that is the thrust of it. Rather than lock in to the flat-rate introduction year for the start of this process, the Government now seek flexibility by way of an order. I would be grateful if the Minister could say how much flexibility they consider it necessary to have. By how many years is it estimated that the consolidation will have to be delayed or indeed advanced, if that is the thrust of it? Could he give us some indication of what this change means in terms of the likely process of consolidation? What does this mean for the wider aspiration, touched on earlier in our debates, of consolidating the basic state pension with the state second pension? I understand what the Minister said earlier about being unable to advance much on that, so I will not press him on that point, but there is a point about the interrelation of this with that process. Presumably, consolidation of the additional pension is a necessary prerequisite, and perhaps he will confirm that.
On one other practical point, I have a recollection that we were chided during the passage of the 2008 Act by the noble Baroness, Lady Noakes, who is not with us today, on our adherence to advice from actuaries. We had some discussion on whether the actuarial smoothing had to be effectively determined by the actuaries, or by Ministers on the basis of advice. Perhaps the Minister could remind me where we ended up on that issue. I beg to move.
My Lords, I thank the noble Lord for the opportunities to speak to Amendments 14 and 15, which seek to define the latest possible group for whom the additional pension consolidation would be introduced. The amendments tabled by the noble Lord, Lord McKenzie, seek to fix the affected group in relation to a somewhat arbitrary date of 2025. It might be helpful if I provide some context as to why we have taken steps to replace the previous certainty as to the start date and the affected group with a power to define both by way of regulations. Clause 3 and Schedule 3 of the Bill provide flexibility around the implementation of consolidation, which, as provided for in the Pensions Act 2008, simplifies past earnings-related pension rights.
Before I go into why we need this flexibility, let me summarise the original intention behind consolidation. It served two purposes. First, it repackaged past rights to earnings-related pensions into a single cash value. Secondly, for around one-third of people with some contracted-out rights in private pension schemes, it smoothed the disparities in payment of additional pensions that occur during retirement. The redistribution of payments helps to overcome differences in indexation between additional pension and contracted-out schemes. Under the 2008 measure, this brings forward costs of up to £210 million per year, but is cost-neutral in net present value terms.
None of the provisions in the Bill change the methodology for consolidation from that set out in the Pensions Act2008. Having reminded noble Lords of the basics, I will not take any more time going through details that are not relevant to this Bill, because a more digestible technical note is available in the Peers’ information pack. Because I have forgotten the outcome of discussions between government Ministers and actuaries, I undertake to write on that. No, I can inform the noble Lord that the outcome of that debate was that it would be a ministerial, not a purely external actuarial, decision.
I return to the issue of implementation. The amendments tabled by the noble Lord and the noble Baroness would place a limit on our ability to specify the group for whom consolidation would apply. The previous Administration considered 2020 retirees to be the first suitable group for whom the state pension age would be equal. They also sought to link the start date for consolidation with the introduction of the flat-rate introduction year, whereby accruals to the state second pension will become a universal set cash amount. The current working assumption is that this date will be in 2012.
The assumption then was that people retiring from 2020 would enter a pension landscape of clarity and stability; and their complicated accruals from before the flat-rate introduction year would have been consolidated into a simple cash amount. However, the pensions landscape has since changed. In the light of this, the proposed legislation in Clause 3 and Schedule 3 would de-link the start date of consolidation from the flat-rate introduction year in 2012. It would also remove the definition of the affected group as those reaching the state pension age from 2020 onwards. The Government will instead have the flexibility to set the most appropriate affected group and start date by order.
These provisions give the Government space to review consolidation in the light of wider reforms. I regret that I am not at this stage able to talk more about the discussions between the DWP and the Treasury, to which I referred. That is one reason why it would be premature to pin down consolidation timing at this stage. We have time to consider the most appropriate timetable for introducing consolidation, and it is wiser not to rush into rash action on something that is, after all, meant to simplify our lives, both for individuals and for administration, when we do not know exactly how the system will develop. There would appear to be no clear reason behind the choice of 2025 as a start date, which I acknowledge was a probing suggestion. Until we have clarity on a new structure of pensions, if there is to be one, and the impact of these changes, it would not make sense to push ahead blindly with a simplification move that may end up not simplifying at all.
On that basis, I urge the noble Lord, Lord McKenzie, to withdraw the amendment.
I thank the Minister for that response. I will read the record with interest, but I will certainly withdraw the amendment.
I just want to be clear on a couple of points. I think the Minister said that something like £200 million per year would be involved in the smoothing exercise. Did I understand that correctly?
Yes. At the early stages there are some years where the figure peaks at around £210 million and then comes back later, so it is a net early annual cost to the state with that maximum, coming down later to a net present cost that is neutral. From memory, the peak year was coming out at—was it 1925? Sorry, 2025. I will get the right century soon. The peak would be early in the 2020s until 2025.
I am grateful for that response. I rather took from reading the literature that the cash flow issue was the real driver in all this, but from what the Minister has said there are obviously broader ramifications. I will read the record.
Might the Minister deal with the point about the other minor amendment about defining a tax year? At the moment the Bill says,
“the tax year beginning with the specified date or a subsequent tax year”.
That presupposes that the specified date would be at the start of a tax year. My question was: does that inevitably follow?
I am grateful for that. I can see that it is meant to be at the start of the tax year. I suppose that I have a question about what makes it the start of the tax year, but perhaps we will leave that for another occasion. I am happy to beg leave to withdraw the amendment.
Amendment 14 withdrawn.
Amendment 15 not moved.
Schedule 3 agreed.
Clause 4 agreed.
The Committee stands adjourned until Thursday.
Committee adjourned at 7.23 pm.