Pensions Bill

Baroness Hollis of Heigham Excerpts

Wednesday 18th December 2013 Grand Committee

Moved by

[Baroness Hollis of Heigham]

9: Clause 2, page 1, line 17, at end insert—
“(c) regulations may provide that spouses or partners accompanying Service personnel abroad shall receive ten additional credited years backdated to 2000.”

[Baroness Hollis of Heigham (Lab)]

My Lords, this is a very simple and brief amendment about service wives. Service wives without children who accompany their husbands abroad have in the past relied on receiving the 60% married women’s pension as a default. Obviously the option for NI contributions through work does not easily apply if you are abroad, and voluntary NICs become expensive if you are there for a long period.

The married women’s dependency pension is going to disappear. The previous Government recognised the particular difficulties of service wives when in 2010 they introduced credits for spouses or partners accompanying service personnel abroad, so the principle is rightly established. Since then, there has been easement for JSA and ESA entitlement.

However, if you are in your late 30s you may have a decade behind you with no NI cover until the 2010 provisions kicked in. This amendment simply allows backdated credits for, frankly, an arbitrary 10 years which, if he is on a 22-year contract, should allow her sufficient cover, and later sufficient time to make up the rest of her contributory years. I do not know the numbers, and I do not know the cost. I hope the Minister will help me out. There may be a better way to do it—for example, as with the reduced married women’s stamp election, which is being turned into a 60% dependency pension, which retains the service wife’s eligibility for a 60% dependency pension, although the problem there will be split years.

I believe that the Government may have found a way to address the problem—this was a hint I received from the Minister in the other place. I hope so. If it is true, it would be great to know about it; and if it is not, this amendment, or something similar offered by the Government, might do the job. We owe it under the service covenant to support wives who do the right thing, perhaps, by accompanying their husbands abroad and then pay the price by lacking a pension when they retire. I beg to move.

[Baroness Dean of Thornton-le-Fylde (Lab)]

My Lords, some years ago I was chair of the Armed Forces Pay Review Body and I saw the way that wives were discriminated against. I remember one case. We went to Belize, where the commanding officer had been offered promotion conditional on his wife accompanying him. She was a very successful lawyer in London and they had to make a decision. She decided to give up her career. While she was abroad—a two-year posting—she was unable to contribute to a private pension fund because she was not doing recognised work. She was working as his partner in Belize on behalf of the British people looking after Army wives. She gave up her career and she lost the opportunity of a good private pension here as she could not contribute because she was not working in this country. She was also losing out at the end of her life because she could not contribute to the state pension scheme either. The changes made in 2010 helped, but this Bill will almost send us backwards. The changes made by my Government in 2010 did not fully resolve this issue. That is one case.

Among the officer cadre in all three services you still find wives giving up their job to accompany their husband, and they get a very raw deal. Until recently, other ranks would have gone to Germany for a two-year posting, and they, too, would lose out. Under the Armed Forces covenant and the updated report issued only this week by the noble Lord, Lord Astor, it is taken into account that we should be looking after families. I have no idea what it would cost and I cannot imagine that it would cost an awful lot of money, but maybe the Minister can help us. As my noble friend says, this may not be the way of dealing with the problem, but somehow it has to be recognised that, in bringing in a Bill that has cross-party support and in general terms is certainly advantageous for most, if not all, women, here we have a group who will continue to lose out, despite the changes that are being made. So it is with a deal of pleasure that I support the amendment, and I hope that the Minister will agree to go back and look at the issue. Perhaps he will come up with something that may not use this wording but which recognises the contribution that these women have to make—and, indeed, by which they lose out when they help their husband’s career, because the post requires accompaniment. If that solicitor, going back those few years, had said, “No, I’m not giving up my career”, the husband would have had to refuse that promotion. There are parts of the Armed Forces where the divorce rate is higher than normal. I am not suggesting that this is the only reason, but I think that it is perhaps one of a whole number of reasons, stress and overreach being another couple.

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[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)]

My Lords, the amendment tabled by the noble Baroness, Lady Hollis, concerns the position of spouses or civil partners of service personnel who accompany them on overseas postings, a group in which I know the noble Baroness has a keen interest. The amendment would enable people in this position to be credited with national insurance contributions for the full 10 tax years between 2000-01 and 2009-10.

We have already taken steps to shore up the contribution records of this group. In 2010, arrangements were put in place to allow the spouses of Armed Forces personnel to gain a national insurance credit for time spent accompanying their spouse or civil partner on postings abroad. These credits are awarded for tax years from 2010-11 and provide entitlement to all contributory benefits, including the state pension. Their main purpose was to provide access to contributory working-age benefits to spouses and partners who might have difficulty in finding employment when they return home. I confirm to the noble Lord, Lord McKenzie, that no changes are planned to those crediting arrangements.

The amendment would enable a person to meet the minimum qualifying period for the new state pension and therefore qualify for a reduced single-tier pension. However, if we were to combine the qualifying years that could be gained under the 2010 credits with those available under this amendment, a person could be credited with up to 16 qualifying years.

We should caution that the existing arrangements incur administrative costs for HM Revenue and Customs and the Ministry of Defence. Applications for the existing national insurance credits need to be validated by service welfare officers and processed by HMRC. Similar arrangements would need to be put in place for these new credits, but that would involve more onerous administration because any validation would relate to periods some years past.

The noble Lord, Lord Browne, made a point about difficulties with take-up of the current credits. We are not aware of any difficulties but, on the back of his concern, we will check with the MoD on that.

Currently, around 500 to 600 people a year have been awarded the credits that have been in place since 2010, but it is unclear how many are likely to benefit for pension purposes from the noble Baroness’s proposed retrospection measure.

[Baroness Hollis of Heigham]

The Minister obviously agrees with my noble friend’s figure of 500 to 600 people, but how many eligible non-recipients does he think there may be? In other words, what would be the total population, of which 500 to 600 are claiming? Does he know the answer to that? I certainly do not.

[Lord Freud]

Unless I am rapidly informed otherwise, I do not think that we know either at this stage. It is likely that most of the people in this group will have been at work or be covered by other credits during the past periods covered by the amendment. Over the course of a 50-year working life, we would expect many to build the 35 qualifying years to qualify for the full single-tier pension in their own right. That is where this problem lies. That said, I understand the concerns of the noble Baroness and would not want to ignore the position of this group of people if they have genuine difficulties in building the qualifying years that they need.

The Committee will understand the Government’s general concerns about going back in time to treat particular groups in different ways, because there are always issues of fairness and parity when you do that—the noble Lord, Lord McKenzie, talked about some of the relationships with people moving into UC and so forth—and that is the case even though special consideration is reserved for the Armed Forces and their families. However, turning to the point raised particularly by the noble Baroness, Lady Dean, and the noble Lord, Lord Browne, we will consider this further.

I have to warn noble Lords that this is a difficult matter, so I am not promising that anything will come out of that consideration. Sometimes, in saying that, one suggests that there is a solution, but we are finding this quite difficult. We are doing that exercise and I am sure—

[Baroness Hollis of Heigham]

Why is it difficult? I understand that when most people in civvy life claim X years ago to have done Y it is very hard to check that, but the one thing that the MoD will have is records. So why is it so difficult?

[Lord Freud]

I will be in a much better position to explain the difficulties in a little while. So, rather than presuming on this, I would say that we are considering it. It is difficult, and I am sure that we will have the opportunity to return to it on Report.

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[Lord Freud]

I will not answer what could in practice be a huge review of everything to make a hard statement on that, but I will write on that point. Having finished, I hope, all the questions asked, I ask the noble Baroness to withdraw her amendment.

[Baroness Hollis of Heigham]

My Lords, I thought this was short, sweet and simple. It is now long and less simple but still very sweet, in the sense that I think there is consensus all round the Committee. I welcome that and I am very grateful to the Minister for his responsiveness to the concerns that we raised. Clearly this amendment was a peg for the discussion that we have had. My noble friend Lady Dean is highly knowledgeable about service families and speaks from very real experience. I am very glad that my noble friend Lord McKenzie was able to get on record from the Minister what the Government’s intentions were about easement, which was very useful. I am still slightly surprised that we did not have this information about the eligible population base for claiming credits since 2010-11 and how many have actually claimed. Is it 500 of 5,000 or 500 of 700? We do not know and I would have expected that information, but I am sure that the Minister will write to us with that because it gives us some sense of how problematic it is when you rely on people to claim, as we have experienced with means-tested benefits for pensioners, for example.

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[Lord Freud]

It is a little early to get into the practicalities, but I am sure that we can arrange, one way or the other —either from a spontaneous governmental unleashing of information or in response to an amendment —to get the latest information on the record at Report.

[Baroness Hollis of Heigham]

I thank the noble Lord. What I would love to see—I know that this has been done in the past because I have done it—is an amendment jointly in the names of my noble friend Lord Browne and the Minister, which will amaze and command total support. In that context, I ask leave to withdraw the amendment.

Amendment 9 withdrawn.

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Moved by

[Baroness Hollis of Heigham]

11: Clause 2, page 2, line 5, at end insert—
“( ) Regulations may provide for circumstances in which a person may opt to have a year treated as a qualifying year if by aggregating income from two or more jobs, that person’s earnings is equal to or greater than the earnings factor for that year.”

[Baroness Hollis of Heigham]

My Lords, this is an amendment about multiple jobs below the lower earnings limit, LEL. There are about 40,000 women and 10,000 men who we know about with two or more jobs each, each of which is below the LEL but which, aggregated, bring them above the LEL and should, I argue, bring them into NI and the state pension.

Who are they? Let me tell some of their stories: all people whom I have met, talked to and canvassed. They are rural women in their 40s with their youngest child over 12, who are patching together what we grandly call a portfolio, the components of which vary over the seasons in rural Norfolk. It might be six hours caravan or boat cleaning on the Saturday—handover day—during the summer, three small house-cleaning jobs during the week for the affluent incomer retirees on the northern coast, some mushroom or fruit picking for a few weeks and, during the winter, two or three evenings working at the nearest pub or newsagent.

One woman averages about 20 hours paid work a week, most of it at minimum wage—as much as she can manage given the danger of five to 10 hours a week travel time between jobs. She has no private car, there is extremely limited public transport in rural counties and she has teenage children to care for and feed. In any case, there are few if any decent 20-hour part-time single jobs, let alone full-time jobs, in rural Norfolk for unskilled middle-aged women without their own transport and with a family to care for. This could be her life for 10 or even 20 years.

Half the jobs in Norfolk, for example, are located in my city of Norwich, which is a 30-mile to 40-mile bus ride away for many people living near the coast, and buses are few. She will never be able to access those jobs, with their better pay and hours. She needs and deserves a pension, and if she cannot build one for herself she will not—this is key—be able to rely in future on any from her husband through the married women’s 60% pension.

A second person whom I met was a divorced Norwich woman in her 50s working as a receptionist for an alternative medicine practice, who told me that her employer would not allow her to work more than 15 hours a week, although she would like to because she enjoys the job, so that he can avoid paying national insurance. He pays three women each for 15 hours a week—because he works a long week—in order to avoid paying NI on any of them. At the time, she was topping up her income, although not her eligibility for BSP, by working extra hours in a florist’s shop. She was desperately worried about her pension situation but did not see what she could do about it.

Another woman’s work patterns are shaped by her caring responsibilities. She does not qualify for carer’s credit, but she fits some pieces of paid work around supporting three elderly relatives in my former ward, plus some cleaning and working in the local launderette.

All those women are working sufficient hours to bring them into the NI system for a pension but because they cannot aggregate them, they do not qualify. When some of us campaigned on this in the past, we were told, first, that you could not reasonably divvy up the employers’ national insurance if there were two or three such jobs, secondly, that the women would not want to pay class 1 contributions and that, in any case, they were few in number, only 15,000, and they were passing through. We were next told that it was a temporary problem for them and they had plenty of time to make up their missing years; finally we were told that they could always buy voluntary NICs and, if all else failed, there was pension credit.

The Government’s supporting papers rebut every one of those arguments and show them to be wrong. We now know that we have 50,000, not 20,000 people caught in this dilemma; two or three times as many. If we do not bring them into NI, they may well cost almost as much on pension credit down the line. That keeps more people in the means-tested legacy system, which we surely want to avoid. The second argument run by the Minister in the other place was that this was a temporary period of their lives. We simply do not know. The Minister is guessing. Some, certainly, may become entitled to a credit or move house into, say, the city of Norwich, and thus have a wider choice of jobs, and as a result may be able to come into NI, but others are stuck. Their patchwork life goes on for years because that is all that is available. We do not have the statistics for them, but 40% of the self-employed have been self-employed for more than 10 years. They include some of the poorest self-employed. The women I have described likewise tell me that they expect their position to continue for many years, often because they need the flexibility that it offers around their caring responsibilities or because they lack realistic alternatives, especially in more rural areas.

They can certainly buy voluntary NICs but, frankly, at £13 a week that is not usually feasible or realistic. It is five times more than we expect a self-employed man to pay. Bluntly, she probably cannot afford it. Is it fair? If she were working those 20 hours on the minimum wage for a single employer, she would get her national insurance but she would be below the PTT and probably would not pay a penny. She would come into national insurance without paying because she would come between the two thresholds. If she were on JSA or a disability benefit and not working a single hour, she would, again, get her NI and not pay a penny. Where she is conventionally self-employed, she will pay £2.70 a week and get NI. If she is employed with one employer, she will pay nothing and get her NI. If she is unemployed, she will pay nothing and get her NI, but because she works 20 hours a week, splintered, she will get nothing at all. Perhaps someone can explain to me why that is fair.

I accept that it has been hard to find a way through in the past, even for those who were sympathetic and did not dismiss mini-jobs as pin money. The Minister has never done that when we have been talking about UC and I am grateful to him. The Bill—bless it—gives us a way through. At last, it is now very simple. HMRC—and the Minister will know infinitely more about this than I do—is building real-time information. Rightly, we are giving the new state pension to all those who are self-employed: 4 million self-employed people will, I understand, gain significantly. Surely we are not going to say to them that we can afford to help 4 million self-employed people, largely men, but not 40,000 people with mini-jobs, mainly women.

Let us now class this woman as self-employed. If she pays the flat rate £2.70 a week, she can, by choice, buy herself a pension for the current year and opt in. We can discuss any backdating rules on retrospective purchase. Equally, we could, say, by regulations, agree that by working a certain number of hours—say, 16 or even 20—she conforms to JSA work search conditionality. She could, if necessary, discuss this with Jobcentre Plus—I have no problem with that—so that she meets the threshold. However, it would be absurd to say that to get an NI contribution she has to stop working 20 hours a week in real, convenient jobs and go and work in Poundland as part of an internship to meet work search conditionality. She is already doing 20 hours a week in work that fits around her caring responsibilities. In this way, she will qualify for a credit just as does someone on JSA who is not working at all.

UC may or may not be available to help her in due course. We do not know how many people it would apply to and by what route. In any case, it would be wrong to rely on it, given the current delays in rolling it out. Realistically, it may be several years beyond April 2016, although not too many, I hope—all years in which she continues to miss out. What number of women in a patch of mini-jobs does the Minister expect to still be unable to build their NI by 2020?

I want to make one final point. I have been describing older women, family women and often rural women, but I ask noble Lords to look around them. I think—it is only an estimate—that 5 million people are estimated to be on zero-hours contracts with uncertain hours, largely in the service sector and usually on the minimum wage. They work perhaps 10 hours one week and 20 the next, and they cannot run a regular job, as we understand the phrase, alongside it, as they always have to be available, so this involves evening and weekend top-ups. It is a major and growing problem in my view. Some may, over the year with one employer, come above the LEL. How many, I do not know. If the Minister has figures, that would be good. However, others on zero-hours contracts will not do that.

Employers love such a flexible, low-paid, semi-casualised labour force—what is not to like for them?—with staff patching together a living wage as best they can around their zero-hours contracts. The price paid is in tax credits from us. There is a burgeoning tax credit bill which, despite the wildly erroneous statements of the Secretary of State, does not come from those who do not get up in the morning but from the working poor, many of whom are on these contracts, as the Minister and this Committee know very well. That cost is paid by us in tax credits and by the worker in poverty, low wages and insecurity in their working lives, and poverty, insecurity and a relatively low pension in their retirement years.

The Bill gives us a way through, either by classifying them as self-employed or possibly by saying that they now conform to JSA conditionality. There are other ways I can think of by which we can do this, but this is a decent opportunity to rectify a problem that has gone on for far too long—that women who are doing their best for their family while contributing to the economy find themselves penalised. We can rectify that. It could be the decent and right thing to do, as I hope noble Lords will agree. I beg to move.

[Baroness Drake (Lab)]

My Lords, I support Amendment 11. It is always a great pleasure to follow my noble friend Lady Hollis. The disadvantage is that she mobilises the argument so compellingly that one feels rather depleted before one even starts to come in to support her. I will try, in a slightly depleted way, to give support on the very important issue which she has identified.

In the numerous iterative debates on the UK pension system in recent times certain criteria key to the design of that system and appraising outcomes have held constant. One of these has been that it must work for women. We cannot wholeheartedly say yes to that, notwithstanding the reforms that we have seen in the Bill. Clearly there is still room for improvement, and two weaknesses are frequently referred to. First, the level of the earnings trigger set for auto-enrolment is too high and excludes too many part-time workers, mainly women. Secondly, women who undertake mini-jobs—each of which delivers earnings below the lower earnings limit of £5,668, the access point for the national insurance system, but which if added together would put them above that level—do not have access to the state pension system under the contributory system because there is no provision for people with mini-jobs to aggregate their earnings in a way that would allow them to enter the NI system.

If we strip that back to its essentials, a woman with two part-time jobs, earning £100 per week from each job, will not be accruing pension rights unless she is covered by some alternative credit arrangement. Someone who may be working fewer hours but earning £110 per week from one job would accrue pension rights. However, £100 equals about 16 hours on the national minimum wage, so if one was doing more than one mini-job, one would be doing a lot more than 16 hours. Yet in the way that the system operates, they are not allowed access to the NI system.

As my noble friend Lady Hollis so clearly explained, this amendment would allow women and men to aggregate income from two or more mini-jobs and opt to have a year treated as a qualifying year for state pension purposes, and to pay national insurance as though they were self-employed. Having said that, I note from the Peers’ briefing pack that the rate of national insurance payable by the self-employed will be a matter for the Government to decide closer to implementation. If the Minister is able to give us indications of the Government’s thinking on that, which would go to the efficiency of the solution, that would be helpful.

As my noble friend confirmed, the DWP analysis found in 2012-13 that 50,000 people—40,000 women and 10,000 men—had two jobs with a combined income above the lower earnings limit, but were not accruing qualifying years towards their pension. Those may be relatively modest numbers—although the real figure may be higher, given that these things are difficult to measure. However, fairness is not simply a function of the number of people affected, because the disadvantage for these people is very real. As my noble friend Lady Hollis pointed out, the changes in the contemporary nature of the labour market may indeed increase the incidence of what the noble Baroness refers to as a “portfolio of mini-jobs”. We are increasingly seeing an intensity of flexibility requirements within contracts when it comes to the hours of work that employers want in any one week. Certainly, therefore, we need an NI system and a state system able to reflect the developments in the labour market so that it stays fair for people who are working.

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[Lord Freud]

I thank the noble Baroness, Lady Hollis, for tabling this amendment on an issue which I know is of great concern to her: access to contributory state benefits, including pensions, for those who have more than one job but do not earn above the national insurance low earnings limit in any one of them.

We have debated this issue over the years. She will be aware that I have equal concern about this issue. Before we get into the specifics, we have a policy to seize this issue head-on, and that is through universal credit. When you look at the debate this afternoon when we talked about the present system—JSA, tax credits, the problems of going through—universal credit basically combines in-work JSA where you are credited for your pension, and in-work benefits. Therefore, the low paid will be credited in the same way as people on JSA are currently credited. Our estimate is that 800,000 more people will be credited as a result of the adoption of universal credit. Noble Lords may well say that universal credit is taking its time coming in: one or two noble Lords have made that point to me. I can only say that we are going as fast as possible. We are rolling it out.

That is the fundamental solution. Any of the adjustments suggested today would be time-consuming changes to make. One has to take a strategic decision. Does one have a system that sweeps away these problems, or does one make itsy-bitsy changes with HMRC here or there? They all take time. I think it was the noble Baroness, Lady Dean, who said that HMRC is slow to make adjustments, but they are genuinely difficult to do. I have been involved in quite a few government change programmes now and even relatively modest changes are time-consuming and soak up the energy of the people doing them.

The question asked by the noble Lord, Lord McKenzie, about cutting into the RTI system ahead of universal credit is an interesting one. Clearly, we are looking very closely at how we use RTI in different ways. One of the issues in terms of a comprehensive solution for this relatively small group is that we have to be sure they are on the PAYE system in order to use it as a comprehensive cut through. My instinct—again, data are short here—is that this is not a comprehensive solution in the same way as catching them at the UC level. If you are not on PAYE, you can self-declare and get the system to work. I do not think that RTI is the solution.

As noble Lords have pointed out, the numbers are relatively small—some 50,000—but just because the numbers are small does not mean that we should not worry about the issue. That is what universal credit is trying to catch.

[Baroness Hollis of Heigham]

The Minister said that the numbers were small, which is to restate the 50,000 figure. I thought that my noble friend exploded that pretty effectively. Not only is that itself pretty doubtful, but we now have the issues associated with zero-hours contracts. We specifically asked whether they had been taken into account and what would now be a reasonable basis on which to go forward with shared information.

[Lord Freud]

My Lords, as I said even before the noble Baroness intervened, even though the numbers today are relatively small, I am not decrying that particular issue. I was referring to the 50,000 figure—the current estimate of those affected. Let me get on with my argument and not worry about that at the moment.

The drive to universal credit is to allow greater flexibility in the labour market, so zero-hour contracts work with universal credit. There may be elements of zero-hour contracts that are of concern, particularly if the balance of power between the employee and the employer is unfair, but universal credit works with that flexibility of the labour market.

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[Lord Freud]

The noble Lord is exactly right. It goes to the point of what we are discussing. It would get you the pension entitlement and the bereavement benefit entitlement but not the contributory entitlements. The current arrangements for crediting a person with national insurance contributions are comprehensive. They cover all the main reasons why someone may not be working, or working only a small number of hours, such as ill health and unemployment, or where people are caring for a child aged nought to 12 or for someone with a disability. They also cover those currently entitled to working tax credit, and we have recently introduced credits to protect the contribution record of working-age grandparents looking after their grandchildren.

Those who fall outside the scope of the crediting arrangements and who can afford to do so—higher paid households are clearly in that category—can make payments on a voluntary basis. The current rate of voluntary class 3 national insurance contribution is a very fair price at £13.55 a week, or £705 a year. The person could recoup the cost within four years of receiving basic state pension benefits.

Using this approach to establish whether a person’s combined earnings exceed the lower earnings limit would require the collation of tax and contribution returns for employees with multiple jobs. That clearly would place a burden on business and require HMRC to develop complicated IT which would take time and money and benefit a small number of people. We would also need to consider collecting the employer’s national insurance contributions in proportion to the earnings in each job, which would add considerable administrative complexity.

The question that one needs to consider is whether those who have aggregate earnings above the primary threshold should be credited or should pay a discount rate of national insurance. That is a question I address to the noble Baroness. It could be seen as quite unfair on someone who is earning just over the threshold in one job and has to pay full national insurance, whereas someone else just below might be credited.

[Baroness Hollis of Heigham]

That applies if someone is in one job and £1 below the PTT for these purposes; they will still be credited and not pay a penny. I do not see the difference at all.

[Lord Freud]

That is the issue about whether one wants to introduce this kind of system across for mini-jobs.

[Baroness Hollis of Heigham]

We already have. All my lifetime, I think, we have had exactly the same cliff edge between those who are below or above the PTT when that diverged from the LEL. That exists now, so there is no difference at all.

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[Lord Freud]

The previous estimate for zero-hour contracts—which is what we are talking about—was that there were 250,000. Let us see the figures today for those on part-time work. I cannot remember the figure offhand—is it 1.5 million? There is a boundary, therefore, about what proportion of flexible working is formally on the zero-hour contracts. Rather than speculate on what the real figure is, I think that we should wait until the ONS comes out with a figure, if it is going to revise that.

On the pointed questions about self-employment rates raised by the noble Baroness, Lady Drake, rates of national insurance are clearly a matter for HM Treasury. However, we have not assumed that self-employed contributions will increase single-tier cost estimates.

I know that the noble Baroness has been a champion of this group and has genuine concerns about it losing out. As the new systems come into sharp focus—universal credit, RTI, single tier—there will be a chance to look at this issue properly when we know exactly what is happening, where the remaining issues are and then to find a precise way of dealing with it. It is simply too early, right now, to get a clean and elegant solution, but we do intend to look more broadly at crediting arrangements to examine the possibilities of modernising and simplifying the arrangements in that light. So there is a process. Her point is taken: it is just about what is the most efficient and effective way of solving a particular problem. What I do not know and cannot offer now is a timetable. It is something to be looked at some years—not a lot of years—in the future, in terms of exactly what should happen. I think that there will be a solution in the medium term. For those reasons, I ask the noble Baroness to withdraw her amendment.

[Baroness Hollis of Heigham]

I am extremely grateful to everybody who contributed, including the Minister. The debate was very interesting and revealing and a lot of new issues were raised that had not been raised on previous occasions when we have debated jobs below LEL. That suggests that it is worth going back to some of these issues, as the information that we get and the changes in the labour market make those new concerns increasingly relevant.

My noble friend Lady Drake spoke with all the appropriate authority of one of the pensions commissioners. She rightly emphasised—and sometimes I feel that we are simply retreading the same territory—that every pension issue has to be judged through the perspective of how it affects women, because if we get it right for women we get it right for everybody. Actually, that is not usually what we do; we tend to go on bulk numbers, which are made up by men because they are more reliably, through their working life, attached to a pay grade in the labour market that takes them over the LEL level. As a result, we ignore pockets of women here, there and everywhere, around the system, because, for very good reasons indeed, they do not conform to patterns of male working life.

I honour the Minister in his appreciation of the need to have the recognition of mini-jobs through universal credit. He has never tried to underestimate the significance of these issues, and I put it on record that I appreciate that. However, where we have got to today is not quite good enough.

My noble friend Lady Drake emphasised the need to put up the gender filter and, absolutely rightly, emphasised that women are locked out twice over—in their own ability to get into the NI system and by their ability to go through their husband or partner. They are suffering a double whammy. This Bill makes their default position disappear, which is why the problem has increased urgency from when we discussed it around the universal credit and welfare reform proposals some 18 months ago.

My noble friend Lord McKenzie emphasised the practical feasibility of doing this through HMRC arrangements. Given his lifetime of experience in working with businesses on issues like that, I think that his expertise should be taken very seriously by the department, which may not have had similar experience.

My noble friend Lady Dean, like my noble friend Lady Turner, has fought for women’s pensions since the 1990s, as far as I am aware. She got it absolutely right when she said that this amendment, or an alternative way in which to meet that need, would conform to the spirit of the Bill, and that it should not be left in the hope that, in four or five years down the line, the world may be different.

My noble friend Lord Browne made a devastating critique in talking about the inadequacy of the statistics, how every month the number seems to double—geometrically, not arithmetically—and that very soon we will find that the whole basis on which the Government have estimated their costings and needs, on the basis that it is a tiny minority, will be undermined. He certainly makes me even more uneasy about the neglect of this group than I was before we discussed the issue today.

The Minister is relying essentially on universal credit. I see why he would want to do that, but I am trying to do some back-of-the-envelope calculations. Let us take a group of women and say that the system comes into effect and is rolled out nationally in 2020. It may happen a year earlier than that, but it is unlikely to be more than a year earlier. Following the example of my noble friend Lord Browne, let us say that people leaving school at 18, or college or university, are going to a patchwork or portfolio life for much of the rest of their lives, given the increasing dominance of labour market flexibility. I calculate that when they come into the labour market, if at 2020 they subsequently need 35 years, which they will get through some universal credit arrangements—and thanks to my noble friend there is a big question mark over that—that means that they will qualify for a basic state pension in 2055. They therefore have to have been born in 1990 and are currently aged 23. Under the Minister’s own figures, as far as I can tell, any young woman or man who is older than that probably will not qualify under UC for a full pension by the time they retire.

[Lord Freud]

My Lords, I cannot leave that unchallenged. People will have inherited rights, including credits, before 2016. Clearly, many of the examples quoted by the noble Baroness related to people who had had children, so 12-plus years would be credited under the existing system to be pulled forward into the system with the foundation amount, building up beyond that. I also need to remind the noble Baroness that the intention with the universal credit schedule that we have announced is to bring in all people, certainly in the working population, by 2016 and 2017, with a group of ESA recipients left beyond that point for very good reason, because we need to deal with them very carefully. Therefore, under the timings that we have announced, the people about whom she is concerned would be brought in very shortly after the introduction of the single-tier pension.

[Baroness Hollis of Heigham]

I hope that the Minister is right but I do not believe that he is. It is very unlikely that the UC system will be sufficiently stable to be rolled out to the entire working-age population—the Government are not catching these people in their labour statistics—before about 2019 or 2020. I would like to be proved wrong but I very much doubt that I will be. Even somebody who has had two children, which means that they will have had 14 years-worth of credit under the new rules, would still be stuck at about 43 or 44 with no ability to add to those years if they came within this category of having no single job that took them above the LEL. Therefore, we wipe out people who are something like 20 years off their pension life, and they will go into retirement with a fairly trivial amount barely over the minimum qualifying amount. I do not think that the Minister can rely on that.

He is right that some women will manage. Particularly if they have children, they will be fine, but if they have no children, they may have a husband. They may both be on perfectly modest incomes but when, taken as a household, they are tested for their eligibility for working tax credits, where the threshold is relatively low, she will not qualify through that either under the joint claim.

Therefore, I am not at all confident but I would be delighted to receive the statistics from the Minister about the coverage, under the circumstances identified in today’s discussion, for those whom UC is intended to help.

The Minister wants a clean and elegant solution. The clean and elegant solution would be to get as many people as possible into the new system and not to rely on pension credit, a legacy system which will otherwise continue for 30 or 40 years. Unless we can get this group into the system as early as possible, he will not find clean and elegant solutions to sustain the Bill. I am glad that he is going to work on it. I hope that, certainly before Report, he can come back and give us an idea of how he is going to address this issue, even if it is about extending conditionality as a credit into JSA conditionality. That would work for me. I want some way of bringing these people in. I promise the Minister that, if he does not address it, this problem will not disappear; it will grow. It is his responsibility to bridge the deficit between where people are and where some of them may be when he has introduced UC three, four, five or six years down the road. Under the circumstances, I beg leave to withdraw the amendment.

Amendment 11 withdrawn.

--- Later in debate ---

Moved by

[Baroness Hollis of Heigham]

12: Clause 2, page 2, line 5, at end insert—
“( ) Regulations may provide for the transitional rate of the state pension for a person who is ordinarily resident in the United Kingdom and who reaches pensionable age before 6 April 2031 to be increased where the person would have received a higher pension under the previous system based on their spouse or civil partner’s contribution record.”

[Baroness Hollis of Heigham]

My Lords, I apologise to the Committee that I want to raise another substantial issue. After this, I promise that the issues that I raise will get smaller, but other noble Lords’ amendments may be appropriately substantial.

This is about the married women’s dependency pension. This is the first of three amendments. The second amendment is intended to address the issue that widows may face and the third amendment addresses those that divorcées may face. They try to avoid the cliff edge for some vulnerable women—please forgive the political incorrectness. This also applies to men and civil partners, and later amendments apply to male divorcés and widowers.

The peak cost of some £200 million which was suggested by the Minister in the other place would fall in the 2030s for all three groups, including overseas spouses, I gather, which suggests a lower figure, perhaps £100 million a year, during the next 10 years or so. I am grateful to the Box for giving me some additional information on numbers, although I am still not clear about costs. If the Minister can clarify that, that would be helpful.

The Government have rightly helped 10,000 women—it is a diminishing number—who paid a reduced stamp and have put them effectively on to the equivalent of the former 60% dependant pension. At the same time, they are taking that same pension from about 5,000 married women who would otherwise qualify for it each year. This amendment calls for a transitional period of 15 years, as urged by the Select Committee on Work and Pensions on this part of the Bill, having taken a considerable amount of evidence, including some very effective evidence from Age Concern.

This amendment seeks to help women, not many of them, who have, for one reason or another, lived their lives among an older, shall we call it—although I do not mean this to be patronising at all—Daily Mail model, without any expectation that the Government were going to change the rules around them.

On the one hand, the Government are about to reward about 4 million non-working wives with a marriage tax allowance for their husband worth £3.85 a week, costing £700 million a year, and on the other hand they are taking away a £66 per week pension, also derived from marriage—bingo for marriage—at a fraction of the cost of the marriage tax allowance, from older women who have no time to rebuild. The Government are giving to married women with working husbands and taking away from married women who now face retirement with no pension of their own. Husbands—younger men—immediately benefit from a tax allowance transfer which has come as a windfall, while older women lose support that they have been promised all their lives. It is bizarre. Why not spend the first on the second? It will pay for itself several times over and will be far more useful and far more fair for, given their age and such short notice, older women can do little or nothing to build a pension of their own greater than the 60% that they would get as a derived right. That would take 16 years.

Women approaching retirement age had expected the 60% pension and planned their retirement around it. They had, and have, a legitimate expectation. The younger woman and her husband—they are not just cohabiting—receiving the £3.85 household income have not built their lifetime around it and planned for it, unlike the 60% pension. That is simply a windfall. It is unexpected and unplanned and, in my view, much less deserved than the pension that older women were entitled to expect. That younger woman is likely to have many years ahead both to work and gain income and to secure her own retirement with a full pension. I cannot think what mentality, frankly, has produced that juxtaposition and this disjuncture between those two groups, both of whom derive their rights through marriage.

In the other place, the Minister made much of the fact that a significant proportion—more than two-thirds—were male spouses or partners who were born or lived overseas. I now calculate, with the revised statistics that we have had, that huge number to be all of 2,000. However, I have tried to cover that with my,

“ordinarily resident in the United Kingdom”,

which has a good case behind it and which will not trouble the Government.

Indeed, the Minister may also argue, as Steve Webb did in the other place, that he finds it hard to conceive of women who might fall into this group given the wide array of credits—the up to 50 years of working life, which would mean that you start collecting credits at the age of 15 to bring you up to 65, and the 35 years’ NI record requirement. Let me help him, if I may, with two possible categories of women, both of which I am familiar with; I am sure my noble friends have other examples.

I am aware of at least two groups of women who continue to need transitional protection. To get the equivalent of 60% of the future pension equivalent, they would need cover on their own record of at least 16 years—less than that, and they are worse off. Younger women, I readily agree, have time to reshape their plans. They also have appropriate childcare credits, not HRP, which required you to earn actual NI years for it to come into play. Many may have undertaken part-time work above the LEL and may have signed on for JSA, all of this bringing entitlement to a pension of their own. That is as it should be. But women in their 50s do not have that, hence the 15-year transitional period.

Who are likely to lose? The first group is older women with patchy NI years. They got HRP and perhaps did not understand what happened when we replaced it with childcare credits. They did small jobs below the LEL for many years knowing that they would get the 60%. That is what women have told me. They did miscellaneous caring for elderly relatives, credit for which was introduced only in the past five years, which is too late to benefit most of them.

Perhaps their husband’s job took them around the country and they were unable to keep finding new jobs above the LEL for themselves while they moved house and supported his career. As we have discussed, service wives are an extreme case of this. They juggled untidy lives; lives which did not conform to NI requirements. But they knew—or they thought they knew—that they could count on their husband's pension to give them a dependent’s fund. Virtually overnight, as there are no transitional arrangements, that has been taken away.

The Pensions Advisory Service, which I quoted on Monday, completed its survey of nearly 1,000 women and women often commented with additional views. I quote from one of them.

“Had to give up my part-time job when my grand-daughter was born to look after her full-time while her mother and father worked. I’m now desperately looking for work”,

because the NI years have risen to 35. She thought that with 30 years she was all right. She is now 58 and has tried hard to find work but without success. She continues:

“I am getting very worried about the future. I go to bed thinking about it and wake up to face it all again”.

She has a patchwork. She has missing years and we are told that she cannot buy them back before 2006 once universal credit comes into play. Even if she had voluntary NICs, she could not deploy them in circumstances such as hers.

The second group is women who have had poor health for most of their lives—depression, arthritis, angina or diabetes—and they either did not think about or know about incapacity benefits or perhaps believed that the condition was not so incapacitating that they would qualify, especially given the somewhat deliberate stigmatising in the past few years of benefit claimants. Frankly, there has been humiliating treatment of certain claimants by ATOS. I know that the Minister will not want me to recite some of the cases that I have experienced, but they are relevant to this. Their husbands earned enough and, given their poor health, keeping house and perhaps helping out neighbours or local charities was as much as they could manage. If this sounds improbable to the Minister, we are talking about women approaching pension age where the DWP’s own research on benefit take-up among entitled but not claiming pensioners shows how deeply ingrained is the reluctance to claim means-tested benefits.

Such women may have had a few years of NI work behind them but not enough to bring them over the 10-year threshold. If they had nine NI credits or years, they could at least have received £36 a week that they do not in the conventional way, which would normally not have needed to come into play because the 60% was more generous. That de minimis has been removed, although I hope and expect that some women affected will buy an extra year to get over the 10-year hurdle and enjoy £40 a week. However, they probably do not have the time, good health or employability, or in some cases the income, to bring it up to 16 years, or the 60% level that they reasonably expected.

Let me again quote from the TPAS survey. Asked about how they would cope, one woman wrote that she was,

“sick and disabled so unable to save or plan, though very worried as had break in NI due to illness but never claimed benefit”.

Some, but few, I suspect, of the 30,000 affected will be able to afford to buy back missing years. I am not sure whether they can buy them back previous to 2006—we had confirmation on Monday that they could not—where the missing years may have occurred. That relaxation appears to expire in 2015 and the Minister is not continuing it from 2016 onwards.

The Minister at the other end several times argued that if the DWP introduced any transitional period, this would be found by the courts to be arbitrary and would presumably be overturned. He seemed very nervous about the courts; he introduced this argument at least twice when reading his speeches. I am surprised by this. In my experience, if Parliament’s policy intent is clear—see Roe v Wade—it would not fall to judicial review unless it could be shown that it was a decision that no reasonable person could have made. That is quite a high hurdle and clearly not the case here, so if the Minister is going to argue that, may we have proper information about the legal advice that the DWP has received on which the Minister at the other end so heavily relied?

We phased in the rise in people’s pension age over a decade. We are scrapping the pension that they might have drawn at pension age, effectively overnight. I do not think that is fair. If we feel the need to give adequate warning when raising the state pension age, as we did, we should provide adequate warning and therefore transitional arrangements for the most obvious group of real, not notional, losers. It is not difficult. We have the precedent of the reduced married women’s stamp, which we should follow. I beg to move.

[Baroness Sherlock]

My Lords, I shall speak to Amendment 23, which is in my name and that of my noble friend Lord Browne, and to Amendment 12 in the name of my noble friend Lady Hollis, who has outlined the basic issue at stake here. I need not repeat that. As we know, the single-tier pension will be based solely on an individual’s contribution or credit record. Everyone will get out depending on what they put in; as they sow, so shall they reap. But we are concerned in this group with people who chose to sow as a couple, expecting to reap in like fashion, when from now on it will be every reaper for himself or herself.

Changes in labour market participation rates and social structures mean that we recognise that, in future, a system built on individual contributions is the right way forward. This year, 75% of those retiring will have complete contribution records of 30 years. It will be interesting to know what happens when that moves up. However, it is obviously important that the appropriate protections remain in place for those who have caring responsibilities or childcare responsibilities and that adequate information is put out. Subject to those caveats, we accept the direction of travel.

However, we are concerned to understand fully the impact of this provision in the short term on those who will lose entitlements derived from a partner’s NI contribution record on which they may have done their retirement planning. It is crucial, for the reasons that my noble friend outlined, that the transitional arrangements are fair and seen to be fair. We have had representations from groups working with older people, particularly older women, highlighting a range of circumstances in which women did not build up any entitlement. There are women who were entitled to credits but did not bother to claim them as they were planning to piggyback off their husbands’ records and there was no advantage in doing so. Then there were women who worked part-time around caring commitments, as my noble friend described here and in the last amendment. There were women who chose to do voluntary work, knowing that their husband’s pension would support them and who were often the pillars of their local community. I see a lot of them in Durham, who helped to support their neighbours and really were the backbone of the local community.

--- Later in debate ---

[Lord Freud]

My Lords, there are three amendments that are closely related, of which this is the first. I welcome the fact that there seems to be general agreement in principle that what I will loosely call “derived entitlement”, established in the 1940s, is past its sell-by date and has no place in a modern state pension system.

I apologise for the fact that I am going to speak at some length, but it is important that I lay out the Government’s argument for removing derived entitlement by reference to the criteria for judging single tier as laid out by the noble Baroness, Lady Sherlock, at Second Reading: that is to say fairness, simplicity, sustainability, the provision of a decent standard of living for all and, at the same time, the encouragement of private saving through clarity of outcome.

First, we believe that fairness means ensuring an adequate state pension for people who have contributed to the system. That is why we are recycling the savings from aspects of the current system being abolished, including derived entitlement, to give a boost to individuals who have historically been excluded from additional state pension, such as carers, the self-employed and the low-paid. Indeed, around 650,000 women who reach state pension age in the first 10 years of single tier will receive an average of £8 per week more in state pension due to the single-tier valuation.

Sustainability and affordability are also key qualities that the Opposition have made it clear that they are looking for. Let me be absolutely clear that we are ending derived entitlement from principle and not to save costs. However, as we have been asked a number of times about this, and as affordability is one of the criteria of interest to the Opposition in judging single tier, I shall respond to the question raised by the noble Baroness, Lady Sherlock, and deal with the cost issue.

Our analysis shows that to continue running the basic pension derived entitlement provisions for people reaching state pension age up to 2030-31, the cohorts targeted in these amendments, would cost around £200 million per annum in the early 2030s, and those are just the costs for Great Britain. We do not think that it would be possible to restrict transitional protection to those ordinarily resident in the UK, as the noble Baroness, Lady Hollis, hoped. While it is difficult to quantify the cost for those overseas, we think it likely that it would cost about the same amount again as in the UK, meaning transitional protection for the first 15 cohorts could have further costs peaking at another £200 million a year.

[Baroness Hollis of Heigham]

Why does the Minister think that the courts would not support us in having transitional arrangements for those who are ordinarily resident? I am not a lawyer, but, in my somewhat limited experience of judicial reviews, there have been a number of challenges. The two criteria I lay down are: was Parliament’s intention was clear—Roe v Wade—and would it be a position that a reasonable person would think was not unreasonable. The addition of ordinarily resident would seem to fit the criteria for transitional arrangements. If the Minister could help us on why that is not the case, I would be interested.

[Baroness Sherlock]

My question is slightly different, but perhaps the Minister could answer them both at once. Are the costings net of any additional expenditure on pension credit?

[Lord Freud]

Yes, it is a net figure. On the legal position, clearly the noble Baroness will remember that we are in the European Union and there are definitions of which kind of payments are transportable, so to speak, and which ones can be restricted. That is where our legal issue comes from. Therefore, rather than go into huge detail on that—

[Baroness Hollis of Heigham]

Pension credit.

[Lord Freud]

Perhaps I can make sure that the noble Baroness is briefed on that outside the Committee. The question of which types of benefit are transportable around the EU and which you can justifiably keep is immensely complicated. I think that the definition is that a social support you can keep within an area but a pension tends to be transportable. However, I can arrange a detailed legal session for the noble Baroness if she would like that.

Perhaps I may turn to the figures that the noble Baroness, Lady Sherlock, was talking about. Some 290,000 people would be affected at some point up to 2030, which represents less than 4% of those reaching state pension age up to that point. The 30,000 figure is a snapshot in 2020 of the number of people projected to be receiving less at that point in time. That is the explanation of those two sets of figures.

One point concerning payments abroad is that it does not seem fair on our taxpayers and pensioners who have made contributions to the UK, or indeed even affordable, to spend money on those claiming overseas who have never set foot in the UK.

Simplicity is another virtue that the noble Baroness, Lady Sherlock, concentrated on. If people are to save for their retirement or make sound decisions on purchasing voluntary contributions, they need clarity of outcome. Extending the derived entitlement provisions would run counter to the goal of achieving simplicity of outcome for tens of millions of today’s working-age people. At the moment, we are in the position where we can tell people shortly after April 2016 what they have, in the words of my colleague Steve Webb, banked to date.

The key to being able to do that is to have a full rate of single tier that people work towards and a base entitlement on an individual’s own record. At the moment, we will crystallise people’s national insurance record as at 2016, recognising past contributions, and we will move on from there into the single-tier system. We can say, “You’ve got this to date. If you get this many more qualifying years, then you will get the full rate of single tier”.

However, let us imagine what would happen if we were to put in place provisions that allowed people to continue to draw a pension based on someone else’s record. We would have to tell people, “This is what you’ve got on your record but if you’re married or divorced, or if you get married or divorced between now and state pension age, or you get divorced or are widowed after state pension age, then your entitlement might be different. We can’t tell you what it might be because you would have to look to your partner’s, or even ex-partner’s, record”.

[Baroness Hollis of Heigham]

My Lords, I support the Government's position on this, as I think we all do, but what will be the position for the reduced married women’s election, where you are effectively introducing—I was going to say inventing—a 60% dependency pension for a whole new group of women which is rather larger in number than the group we are talking about?

[Lord Freud]

Because we can at that point tell those married women exactly what they will be getting. The difference here is that it is very hard to trace those people to tell them definitively what they will be getting. That takes us back to today’s problem, which is, when you phone up to ask what your pension is going to be in three years’ time, we can give a guesstimate at best. That will remain the case if it is open for lots of people.

Turning to the aim of providing a decent standard of living, we already have an underpin that guarantees pensioners living in Great Britain a minimum amount of weekly income. I confirm the point made by the noble Baroness, Lady Sherlock, that the very purpose of pension credit is to provide support to people in Great Britain who, for whatever reason, have not built up sufficient savings or pension entitlement through their life.

If the current system were to carry on, we project that by 2020, fewer than 10% of people reaching pension age after 2016 would be on the standard minimum guarantee. We have also looked at the group of people who would, under the current system, have been claiming a basic state pension on their spouse’s record—either at the point of reaching state pension age or later, on bereavement. Even if the current system carried on for ever, 40% of the people in that group would be on guarantee credit. That group of people—this 40% of all of our people losing out from the removal of derived entitlement—will get their loss in state pension replaced pound for pound with more guarantee credit. But there will be people not on guarantee credit who experience a loss. If we look at the average changes to household income as a result of removing derived entitlement, we see that the median loss for households affected is about £6 a week. The mean average is about £10 a week. There will undoubtedly be examples where people do lose larger amounts, but again, pension credit is there for them.

I hope that by now it is clear why we have not put in place transitional arrangements and why we have no intention to undertake a review to this effect. We have, however, put in place some protection, specifically to ensure that women who had paid the reduced rate election within 35 years of pension age will get roughly what they thought they would receive. Putting in place protection for these individuals is right: they have clearly participated in the labour market and have contributed. The difference between them and the wider group of people who would have relied on derived entitlement is that those people made an explicit deal with the state.

Furthermore, to address the point raised by the noble Baroness, Lady Hollis, those who have paid a reduced rate election are, crucially, easily identifiable. The message of simplicity for the wider single-tier population will not be affected, and the size of the group enables a bespoke calculation. Were we to apply such blanket protection to everyone, we would simply be awarding everyone with any history of work or credits a 60% basic state pension and, later, a full basic state pension; clearly the costs would become an issue and would not be tenable. We would ultimately be awarding people with just one qualifying year a full basic state pension.

On the point about the married women’s pension, if their entitlement under normal transitional rules would be higher, we will give them that instead, but we are not looking at their husband’s record for that; we will be assuming that they have a full record and award them a pension accordingly. Indeed, we project that, with the vast majority of couples involved, the husband will already have 35 qualifying years. It may be possible for people who are long-term sick but not claiming benefits to apply for credits for a past period. It is not essential for a person to be receiving a benefit to qualify for credits for periods of incapacity, but they would need to meet the entitlement criteria for incapacity for work or limited capability for work each day within the meaning of the legislation that applied at the relevant time. Provided that medical evidence for the whole period can be obtained, it may be possible to apply to a local Jobcentre Plus for credits for past periods. Clearly, I cannot comment on people’s success in that regard or otherwise, but I am glad to be able occasionally to provide some new information to the noble Baroness.

For the individual with 30 years who is looking for work, perhaps after looking after grandchildren, and is now worried, in the example that the noble Baroness, Lady Hollis, gave, we have credits for national insurance for exactly that type of situation.

[Baroness Hollis of Heigham]

I was talking about someone who had cared for her grandchild before the credits were introduced.

[Lord Freud]

Okay. On the specific case of someone who has 30 years and wants to get 35, that is part of the issue that we discussed at length at the last sitting. That individual should be able to benefit from the transitional arrangements. I draw your Lordships’ attention to the analysis in our recent ad hoc publication, which shows that the equivalent of the married person’s pension would be achievable even for the majority of those reaching state pension age in the initial period to 2020 through the purchase of voluntary contributions to cover years back to 2006, or by working or engaging in an activity that earned credits between 2016 and pension age.

I turn to the suggestion that we review the possibility of putting in place transitional arrangements. Such a review would be unnecessary and unhelpful. Noble Lords will agree that, in the interval between Royal Assent and implementation of the new scheme, communications will be crucial. A review at a time when we are preparing the implementation of the new state pension system would create great uncertainty just when we are being urged to ensure that we provide clarity. We had a discussion on that matter on Monday.

I make the general point that one problem here is that we are moving from the current system because it is too complicated for anyone to understand. The risk of some of these arrangements is that we just re-import all the complexity that we are trying to get rid of. That is a real and substantial risk, which we believe we must try to avoid.

In summary, we have had to make decisions about how we move over to the new system. In a system where changes to society and to the existing pensions system mean that a majority of women and men already receive a full state pension, these provisions, designed for the post-war era, are now an anachronism. I hope that I have set out the case that our approach in this respect has been as fair, simple and sustainable as possible. I ask the noble Baroness to withdraw her amendment.

[Baroness Hollis of Heigham]

Thank you. I would like to push the Minister on the comments made by my noble friend Lady Sherlock, who rightly warned against hindsight and applying modern attitudes to labour market decisions made some time back. That discussion will be repeated when we come on to widows in a moment. The Minister’s references to women being eligible in certain situations to claim pension credit precisely missed the point raised by my noble friend. If someone is in a couple with a husband who has acquired full contributory years, possibly with some minor additional savings, they will be floated off pension credit, so they will not be entitled to claim it, nor will she be entitled to claim it in lieu unless she is indeed solo.

I am grateful for the Minister’s help on “ordinarily resident”. I should like to see the legal advice, because I think it is arguable which side of the bridge it falls on. We have had plenty of debate on that in the past.

The Minister cited the four tests raised by my noble friend on Second Reading. I remind him of the tests in the impact analysis in October 2013: what are the policy objectives and intended effects? Four were offered. It stated that the intended effect of state pension reform was that,

“individuals have a better understanding of the state pension system,”

and how much they can expect to receive,

“and therefore engage more actively with planning for retirement”.

The people we are talking about understood the rules perfectly well. It is the Government who have changed the rules around them, not that they have failed to do anything that the Government think that they should have done at the time. We fail the first test in the impact assessment.

The second test is that the,

“inequalities of state pension outcomes within the current system are reduced”.

Some are reduced, but the Minister is substituting new ones, including those involving the green stamp and the women I am talking about. The third test is that,

“individuals have reduced interaction with means-tested benefits in retirement”.

That is highly doubtful, given discussion on previous amendments. The amount so far established is pretty trivial. The final test is that,

“the state pension system is more affordable and sustainable in the long-term”,

whereas the Minister has been arguing that it is cost-neutral. He failed to address the fact that there appears to be adequate money—£700 million—to introduce a marriage allowance while taking away support for marriage when it comes to pension arrangements. It is a modern world when it comes to pensions; it is what I do not doubt that the Minister would call a Beveridge world when it comes to married women’s tax allowances. I noticed that he did not venture a comment on or pray the modern world in aid against the Beveridge assumptions behind the married women’s tax allowances, as he would no doubt have described them if we had proposed them and he was criticising them.

The Minister says that the present arrangements are an anachronism. I am sure that it will be a great comfort to those women who are going to lose their 60% entitlement virtually overnight to be told that they are an anachronism and that it is their fault that they cannot shape up in the limited time available to change their situation.

Women have always had a lousy pension deal; it has never worked for them. By refusing to permit a transitional arrangement, we are colluding in that lousy deal by picking off an easy, voiceless, vulnerable group. I have to say that I am disappointed by the Minister’s response, but I beg leave to withdraw the amendment.

Amendment 12 withdrawn.

Moved by

[Baroness Hollis of Heigham]

13: Clause 2, page 2, line 5, at end insert—
“( ) Regulations may provide for the transitional rate of the state pension for a person who is ordinarily resident in the United Kingdom and who reaches pensionable age before 6 April 2031 to be increased where the person would have received a higher pension under the previous system based on their deceased spouse or deceased civil partner’s contribution record.”

[Baroness Hollis of Heigham]

My Lords, I will be pretty brief.

Until the Bill comes into force, a married woman would qualify for 60% on her husband’s record on retirement. A widow would get his full record, which was usually the full 100%. That is a different issue because they claim entitlement to different sums. In future, under the new state pension, she is on her own. If she does not herself have the requisite number of NI years, she gets no derived pension either as wife or as widow; she will be reliant on means-tested pension credit. To change the system in that cliff-edge way is quite wrong.

We know that mortality and morbidity rise sharply with age. There is a threefold increase in deaths between 55 and 65. In that decade, twice as many men die as women. Usually, they will have died from lingering illnesses, such as cancer, heart disease, Parkinson’s or similar, unlike younger men who tend to die from external accidents and so forth. Their wives may for many years have been home, been around, reassuring them, helping and caring but not perhaps sufficiently to get a carer’s allowance, and carer’s credit has only recently been introduced and is not sufficiently known about or claimed. Then, after 2016, he dies. Her own pension record is considerably incomplete and she cannot substitute his contributions for her own.

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[Lord Freud]

I am sorry, I was not referring to the Jack and Jill question; I was referring to the second example, where the noble Baroness asked me whether she had interpreted it correctly. I have the pleasure of telling her that, as always, she is absolutely correct, except of course where she disagrees with me.

I will not go into the arguments on simplicity and clarity or fairness, because the same arguments apply. In the light of my response, I hope that the noble Baroness will withdraw her amendment.

[Baroness Hollis of Heigham]

My Lords, my noble friend was referring to Jack and Jill. I assumed when I read this that HMRC, with perhaps unsuspected irony—perhaps the people who drafted this have young children—remembered that Jack fell down the hill and no doubt departed from this life, and Jill came tumbling after, thereby losing her 100% derived rights. I suspect that that is what HMRC may have intended, in which case it was all too accurate.

I simply think that what the Minister is doing is harsh, unnecessary and not costly to remedy. People made decisions and plans for their lives many years ago and he is now—this is the same point that my noble friend made about hindsight—projecting current takes on the labour market and women’s role in it back on to a previous generation who shared no such perceptions and perspectives. I think that in all decency we should give them a chance to remedy their situation through transitional arrangements.

We may revisit some of these issues when we come to bereavement payments, and I am sure that the noble Lord is looking forward to that. On that basis, I beg leave to withdraw the amendment.

Amendment 13 withdrawn.

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Moved by

[Baroness Hollis of Heigham]

14: Clause 2, page 2, line 5, at end insert—
“( ) Regulations shall provide for the transitional rate of the state pension for a person who is ordinarily resident in the United Kingdom and who reaches pensionable age before 6 April 2031 to be increased where the person would have received a higher pension under the previous system based on their former spouse or civil partner’s contribution record.”

[Baroness Hollis of Heigham]

This amendment is the last in the series and is, I hope, equally short.

Some dozen years ago, with the help of my noble friends Lady Dean and Lady Turner, we established pension-sharing on divorce. For many couples then, the man’s pension, especially his occupational pension—and it was usually his—was more valuable than the home, but it was not regarded as a matrimonial asset. Even now, not enough solicitors, in my view, seem to be fully aware of that, although couples will often trade: she the house, he the pension.

For less well-off couples, his additional state pension was a structured income that could be shared to help her too. Therefore, at the point of divorce—usually, perhaps, in the couple’s early 40s—she could substitute his NI record, so far accrued, which might be 20 or 25 years, for her own, and in addition they could have attributed to her half his additional pension. As I understand it, in the future she will be eligible to pension-share his SERPS or S2P—that is, his additional pension acquired up to that point—but not to substitute his basic NI contributions for her pension if hers are also more favourable. She is on her own.

Again, it is a matter of age. Younger divorced women, with or without children, will have enough time, through either NI contributions or child credits and, I hope, universal credit, to build their own pension. However, older divorced women in their 50s do not have that head space or do not always have that resilience; they may have been looking after his elderly parents for him or have helped him, as we learnt at the time, unpaid, to build his small, self-employed plumbing or taxi-driving business, keeping the books and booking the jobs. When looking at this in 1995, my friends and I found countless stories of this exploitation where she sinks her labour into his work, he builds up his pension—assuring her that it is for both of them—and then, at quite a late age, she gets dumped, as the phrase goes, for a younger model. I would be sorry to see history repeat itself. We can avoid that by permitting a transitional period of 15 years. I beg to move.

[Baroness Turner of Camden]

I support what my noble friend has just been saying; nobody likes being dumped. I do not know whether noble Lords have seen from the newspapers lately that there has been a rise in the number of older women divorcing. It is quite remarkable; people who are quite elderly and approaching pension age are getting divorced, whereas formerly they simply put up with it. It can be quite a problem.

[Lord Freud]

My Lords, I will avoid the issue of divorce rates because I am aware of the quagmire in which I will incredibly rapidly end up if I say anything at all.

The final amendment tabled by the noble Baroness on the issue of derived entitlement focuses on the impact upon divorcees and people whose civil partnerships have been dissolved. Under the current system, divorcees can—through a somewhat complex mechanism colloquially known as “substitution”—use their former spouse’s or civil partner’s contribution record to qualify for a full, or enhanced, basic state pension. With the ability to derive a pension ending for post-2016 pensioners, we accept that some divorcees may be affected, and they are likely to be those divorced relatively late in their working life. We estimate that these individuals could number about 70,000 up to 2031.

Turning to the specific situation of divorced women, it is likely that single individuals who themselves have not achieved a record sufficient to build up a full basic state pension will be eligible to claim guarantee credit, which is considerably higher than the maximum a divorcee could derive from a former spouse through the current, complex substitution arrangements.

These provisions are extremely complex and, as with the married woman’s and widow’s pensions, there is no longer any substantial need for these arrangements because the vast majority of women will receive a pension in their own right.

I repeat that in designing the transition to single tier, we have had to make decisions about the way that we spend the money we have available and about how to achieve the simplicity needed for people to make decisions about their retirement plans. A safety net will remain in place and absolute losses will, on average, be relatively small. I therefore urge the noble Baroness to withdraw the amendment.

[Baroness Hollis of Heigham]

My Lords, the Minister is absolutely right to say that it is a problem for late divorcees, as it is for widows or for women who married in their 50s and expect but then have removed from them the married woman’s dependency pension. Those people do not have time to rebuild their lives. My calculation is that that involves perhaps fewer than 5,000 people a year.

What interests me is that, given that the impact analysis claims that the Bill is determined to reduce means-testing, I have checked back in my notes and in something like five out of the last six amendments to which he has spoken the Minister has referred to pension credit and top-up, thus re-importing back into the system pension credit means-testing for cohorts of people that he could perfectly well take out if he was willing to contemplate transitional arrangements. He is getting rid of complexity for him and giving it over to them, because they will be required to go through all the stumbling blocks of pension credit and a reluctance to claim a means-tested benefit, which we discussed at some length on Monday. His position is harsh and unfair on all three amendments, particularly when we take into account that the Government are willing to find money for the married women’s tax allowance—which he still has not addressed, after three amendments—but not on these amendments, when older women are losing rights around which they have built their lives. I beg leave to withdraw the amendment.

Amendment 14 withdrawn.

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[Lord Freud]

They are all class 3 in universal credit.

[Baroness Hollis of Heigham]

And JSA?

[Lord Freud]

JSA is, I think, already a class 3, is it not? I have a comprehensive list of national insurance credits. Rather than running through them all, perhaps I should just forward it to the noble Lord and the Committee to make the point.