The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
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.
Baroness Hollis of Heigham
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.
Lord Freud
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.
Baroness Hollis of Heigham
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?
Lord Freud
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.
Lord McKenzie of Luton
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.
Lord Flight
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.
Lord Freud
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—
Lord Freud
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.
Baroness Hollis of Heigham
Given that the Minister referred to last year’s Marmot report on health, can he confirm that it found a 17-year difference in healthy life expectancy between the richest and the poorest?
Lord Freud
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.
Lord Freud
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.
Lord Freud
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—
Baroness Hollis of Heigham
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.
Lord Freud
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.
Baroness Hollis of Heigham
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.
Lord Freud
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.
Baroness Drake
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.
Baroness Drake
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.
Lord Freud
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.
Lord German
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.
Lord Boswell of Aynho
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.
Lord Freud
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.
Lord McKenzie of Luton
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.
Lord McKenzie of Luton
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.
Lord Freud
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.
Lord Freud
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.
Lord McKenzie of Luton
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.
Lord Freud
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.
Lord McKenzie of Luton
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?
Lord Freud
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.
Lord McKenzie of Luton
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?
Lord Freud
The noble Lord, as ever, is spot on in his assumption. Yes, it is at the start of the tax year.
Lord McKenzie of Luton
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.