Pensions Bill [H.L.]

HL Deb 20 February 1995 vol 561 cc993-1026

House again in Committee on Clause 114.

The Earl of Clanwilliam moved Amendment No. 184:

After Clause 114, insert the following new clause:

("Level of pension to be limited on basis of other taxable income

. After section 43 of the Social Security Contributions and Benefits Act 1992 there shall be inserted the following new section—

"Level of pension to be limited on basis of other taxable income.

43A. Notwithstanding the provisions of this or any other enactment, there shall be an upper limit on the total amount of retirement pension payable to any person, such limit being determined on the basis of that person's other taxable income as specified in the following Table—

TABLE
Other taxable income	Maximum level of pension
Under £12,000	100%
£12,001–£14,000	80%
£?14,001–£16,000	60%
£16,001–£18,000	40%
£18,001+	20%.").

The noble Earl said: In moving Amendment No. 184 I wish to speak also to Amendment No. 200. The Committee may be relieved to hear that Amendment No. 200 states that the section shall not come into force until 6th April 2010. There is therefore no immediate danger of any revolution with regard to that amendment.

It is a fact that state pensions are regarded by some not only as an article of faith but also as a statutory right, and that everyone is entitled to a state pension which they have paid for throughout their working lives. The fact that they have not paid for it throughout their working lives, but have merely paid for other people's pensions is beside the point. It is perceived that they have a right to this provision. People understand that the state pension is graduated according to the contributions that have been paid.

No one should misunderstand me. I fully understand that there is a strong feeling that the pension is considered to be a right. Nevertheless, the real world marches on and it is accepted on all sides of the political spectrum, with the exception of those who have a conviction that the economy will grow faster than the population will age, that the state pension will be an increasingly intolerable burden on the working population in 20 years' time who may be asked to pay not the 10 per cent. of National Insurance contributions that they are now required to pay but probably 20 per cent. or more. It is a general misconception that the economy will grow faster than the population will age. This amendment is designed to relieve that pressure on the working population. This is only a parting shot across the bows of those who will retire from 2010 onwards. This is therefore a probing amendment.

The figures in the amendment are perhaps not entirely accurate. I have prepared some alternative figures to those which appear on the Marshalled List. It is possible that the starting range could be anywhere from £12,000 onwards. Where the figures on the Marshalled List show large and sudden drops of income, that could be relieved by reducing the range by 2 per cent. per £100 or 2 per cent. per £500. According to the Inland Revenue statistics and economics office, 89 per cent. of people who are in receipt of pensions have less than £12,000 a year. Therefore only 11 per cent. of the pensions population would be affected by an amendment to their income that would reduce from the figure of £12,000 onwards. As I say, the £12,000 figure could start at any point one wanted, but it would reduce the pressure upon the working population. I beg to move.

Baroness Turner of Camden

I am obliged to the noble Earl, Lord Clanwilliam, who was kind enough to tell me in advance about the amendment that he intended to move. I do not believe that he was at all surprised to learn that we on this side of the Chamber would have great difficulty in supporting it. The reasons are clear.

We do not want to see a further erosion of state pension provision, which we believe the amendment would bring about. That is not to say that we are opposed to a partnership between public and private provision. I strongly supported the legislation introduced in the mid-1970s which was designed precisely on that basis. I agree with the concept of two-tier pension provision—a basic pension payable to everyone irrespective of their income and a second-tier pension provided either by SERPS or a good occupational pension scheme.

In my view, the amendment of the noble Earl, Lord Clanwilliam, undermines that system still further. It may be argued that we have to cut down on state provision because of cost or demographic changes, but in my view pension provision is a form of contract between the generations. Once, perhaps, that contract was filled by the extended family, which was expected to look after old people. However, we have long passed that stage.

We now have a situation in which it is up to the community to provide for basic pensions. It is because it runs against that concept that I cannot commend the amendment of the noble Earl, Lord Clanwilliam, to the Committee, although must confess that it is very innovative, given the philosophy that lies behind it.

I believe that we have to maintain a basic pension provision which has been paid for by national insurance contributions. I still support the insurance concept originally introduced by Beveridge all those years ago, which still has validity nowadays. I hope that the Government do not support the amendment. I certainly cannot commend it to the Committee.

Lord Dean of Harptree

The Committee owes a great debt to my noble friend for thinking the unthinkable and speaking the unspeakable. That certainly would not be possible in another place where, understandably, Members have to think about being re-elected. I would be very surprised if my noble friend the Minister warmed to the amendment at this time. Perhaps in a hundred years time the situation will be different. Nevertheless, this is a serious point which is worthy of a short debate, even at this late hour.

In 1948, when the national insurance scheme was introduced and extended to virtually everybody, very few people, apart from those in public service, had occupational pension schemes on which to rely. There were the thin '30s when the possibilities for savings were very limited. The situation now is completely transformed, very much to the good. I am told by my grandchildren that we now have a phenomenon called Woopies (well off old people). That does not apply to everybody, of course, but nowadays a growing number of people retire with the national insurance pension, an occupational or public service pension and also savings which they have managed to accumulate during their working lives.

Therefore, my noble friend is right to ask whether it is really necessary any longer for those comparatively well-off pensioners to be an obligation on the state. The answer to that question is no. How does one achieve that? My noble friend would achieve it by a means test for everybody, which would be extremely unpopular. My noble friend will realise the implications for the re-election of our party at the general election were his proposal to be introduced.

Having said that, this is a serious point. The time could well arrive—probably later rather than sooner—when we ought to reconsider whether the Beveridge approach is still necessary and whether it is appropriate that those who are comparatively well off in retirement should place this great obligation on the state and the large and ever-increasing social security budget, to which my noble friend the Minister has referred on more than one occasion during these debates.

Lord Mackay of Ardbrecknish

This has been an interesting debate. My noble friend Lord Clanwilliam has approached the issue of retirement pensions from a different point of view from the normal one.

In general terms our policy on pensions has three strands. First, we are pledged to maintain the value of the basic state pension in line with prices as a solid foundation for all in retirement. Secondly, we wish to encourage personal responsibility for additional pension provision through occupational and personal pensions. Thirdly, we wish to focus additional resources on the safety net of income-related benefits to help those without other income.

It is often argued, and my noble friend argued this evening, that the £25 billion that we spend on pensions is poorly targeted. Some people think it wrong that contributors should fund pensions for millionaires and believe that state pensions should be withdrawn from richer retirees. While the proposed measure would clearly save money and target payment to less well-off pensioners, it was only five years ago that we abolished the earnings rule that applied to the basic retirement pension. I can tell my noble friend that we do not intend to introduce such a measure, even by the route he outlines in his amendment. It would be extremely unpopular. A means test of the kind he suggests could act as a disincentive to individuals to provide for their retirement and it would penalise pensioners who have made private provision for an adequate retirement income or who choose to continue working after state pension age.

Other measures in the Bill—and we shall come to some of them later this evening—are being introduced to help to ensure that the basic pension entitlement is affordable as it stands for future taxpayers. We maintain that the basic pension should act as the foundation of pension provision.

My noble friend's methods of dealing with the problem are ingenious, especially the proposal he puts forward to reduce the effect of the "cliff edges". We have tried to think what it might mean financially. Without working up a detailed scheme and making a number of assumptions about future incomes, because it would be difficult to take the future of SERPS into account, if such a scheme were introduced today and applied only to the basic state pension, we think tentatively that savings at 1995–96 prices would be around £900 million out of a budget of £27.8 billion. Taking account of the tax loss, the PSBR effect would be around £600 million per annum. Means testing on the scale envisaged is administratively complex and would be expensive to run.

I am grateful to my noble friend for encouraging me to turn my mind to this particular way of looking at the problem of pensions in retirement, but I believe that the basic state retirement pension is highly valued in this country. We are looking at different ways to address the problem of affordability. In addition, people who receive larger incomes in retirement as mentioned in my noble friend's amendment are liable to pay income tax on that income. Therefore, there is a certain amount of clawback in that regard.

With those few words, I hope that my noble friend will be able to withdraw his amendment.

The Earl of Clanwilliam

I thank the noble Baroness, Lady Turner, and my noble friend Lord Dean of Harptree for speaking on my behalf. I am glad that I was found to be both innovative and unspeakable.

I wish to refer to one point. A number of people will pay 40 per cent. tax. That is a disadvantage to my own case. Those who pay the higher tax of 40 per cent. will not receive as much benefit. Therefore they might not be missing so much income in their retirement which they do not need anyway. With those remarks, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

8.30 p.m.

The Earl of Clanwilliam moved Amendment No. 184A:

After Clause 114, insert the following new clause:

("Mandatory personal pension contributions

. No person shall be eligible for a retirement pension under the provisions of the Social Security Contributions and Benefits Act 1992 unless, from the date of their 25th birthday, they have made a contribution, amounting in each year to at least 10 per cent of their gross annual income, to an Appropriate Personal Pension Scheme to which contribution would be made on contracting out of SERPS.").

The noble Earl said: If I were innovative on the last amendment I shall be even more so now. We are now in the realm of personal pensions. Having examined in great depth the navel of the occupational pension schemes, we turn to the subject of personal pensions. There is the need for personal savings, not only for the benefit of the saver but also to create a savings philosophy and culture throughout the nation and to involve the estimated 50 per cent. of the working population who are not covered by some independent pension arrangement. Indeed, I believe I am right in saying that it was Beveridge's vision that we should make personal savings provisions and that in organising security, the state should leave room for voluntary action to provide more than the minimum. We need to provide more than the minimum because the £4,000 or £5,000 retirement pension, of which we have just been speaking, is not very much.

It is remarkable that Japan, which finances most of the world's debt, has successfully encouraged the accumulation of private capital. As a result, almost alone in the world, its pensioners as yet are self supporting. As I said on the last amendment, it is clearly acknowledged on all sides of the political spectrum that our own prospects of being able to support our old age pensioners in the 21st century are slim—certainly in the manner they might have expected. That was clearly debated in Second Reading speeches. Yet in this country some £500 billion is invested in pension funds largely provided from employers' profits. There is the need therefore to make radical improvements to existing pension provisions and to reduce the drain on corporate profits by providing increased investment for industry. I suggest that we do so by personal savings rather than at the expense of the company's profit and loss account.

There is the need for everyone to start a constant savings stream throughout their life. Would indeed that I had done so myself. The amendment proposes that a mandatory savings scheme shall be started by every national insurance contributor before the age of 25 by contributing 10 per cent. of his or her salary or wages to an appropriate personal pension plan with a minimum contribution ideally of £1,000 a year. According to Part A of the New Earnings Survey 1994, Summary A14.2 indicates that of the 20.8 million people employed in this country, 12.8 per cent. earn less than £10,000. One thousand pounds a year is 10 per cent. of £10,000. Therefore, it should not be difficult to achieve that figure.

For those who contract out of SERPS, the appropriate personal pension plan already receives 4.8 per cent. of rebate. Assuming that contributions attract tax relief at 25 per cent., an additional 2.7 per cent. is all that is required to make up a total gross contribution of 10 per cent. Surely that is not too great an additional sum to ask of savers, or with regard to the very low paid, of their employers—although it is not my intention to involve the employer except in extreme circumstances. It can be shown that just 10 per cent. of earnings adjusted in line with inflation and earnings will provide the traditional two-thirds of final salary after 38 years, using a growth factor of 8 per cent. Some figures extracted from Money Management of November 1994 detailing performance figures for unitised personal pension funds show that such performance figures are not exceptional, and indeed are accepted by LAUTRO. However, I must confess that the 8 per cent. figure to which I referred does not account for commissions and charges. I shall come to costs in a moment.

In this context, it may be relevant to quote the BZW Equity-Gilt Study of the Real Return on Equities since 1918. I emphasise that it is 1918 and not 1980. From 1918 to 1993, the annual return on UK equities with taxed income reinvested was 7.9 per cent. over 75 years. Therefore 8 per cent. may not be considered over optimistic, especially in view of the fact that it is a LAUTRO-approved figure, a figure that includes cost of commission and management of funds.

There is the need to make savings and pension plans more efficient and by the same token less expensive. Plans which are mandatory need no selling. Hence there can be lower commission rates and charges. Fund management can be awarded by the recently conceived fund based commission. The basic management charge could be increased with fund performance. Fund managers of occupational schemes would equally manage the separate savings or appropriate pension plan. That will provide a bridge between the two systems which I envisage would meld over time. It is not too much to expect that as company funded occupational schemes become too expensive for a variety of reasons (which are obvious and which have been widely discussed previously) companies will start money purchase group personal pension plans instead which can incorporate, if only for investment management purposes, an appropriate personal pension plan such as I propose.

Crucially there will be a fund performance table run by SIB or PIA which could perhaps license specific funds and management teams in order to ensure that we achieve the 8 per cent. performance. There is, too, a need to simplify the transfer calculation on changing jobs and to provide for instant recognition by the saver of the value of the fund accumulated and to create an identity between the saver and his or her fund. Such plans already exist in the form of the additional voluntary contributions and personal plans. Many of the additional voluntary contributions are applied to occupational schemes.

The mandatory appropriate personal pension plan which I propose is only an extension of the contracted out portion of SERPS which presently runs in parallel with existing occupational schemes and the AVCs which I mentioned. The APP would receive all transfer contributions. It already satisfies the requirement for portability between occupations. There should be reformed transfer charges but that would be the responsibility of the occupational pension fund managers and trustees who at present have a frightfully complicated system. The existing capping and funding limits of pension plans would continue to apply. The noble Baroness, Lady Seear, referred to a variable retirement age. That would be between 60 and 75—not just covering a decade. There would be no tax free cash sum. A compulsory pension would be taken from the accumulated fund.

One already has PEPs, additional voluntary contributions and many other additional ways of adding money to one's pension plan, if wished. Those could be applied through the normal routine of the present rate of charges and expenses and would top up the 10 per cent. that I propose. Capital sums would be available to pay off mortgages or other personal charges on retirement. Equally, the additional voluntary contribution scheme would be a vehicle for that extension of the principle.

The problem of the self-employed needs equal consideration, but only in respect of the enforcement of the contribution. That can be rated in the income tax return or the fund manager's certificate at present available. I have in my hand the BZW return on gilts, which carries through from 1918 to 1993 a figure of 7.9 per cent. The document has come from your Lordships' Library.

The suggestion may be considered innovative or even unspeakable, but I think that it is important. It is a contribution towards making personal pensions the new form of personal savings to look after our retirement and our old age. I beg to move.

Baroness Seear

This is an interesting proposal, but I do not believe it is compatible with what we are doing in the Bill. Some time ago the Liberal Democrats came to the conclusion that it would have been wiser to abandon SERPS and have a compulsory contribution along the lines that the noble Earl suggested. The more one considers pensions, the more one is aware that it is an enormous undertaking to attempt to provide adequate pension provision on the scale that people rightly wish to have. Sooner or later some changes much more fundamental than those proposed in the present Bill will be necessary. I suspect that something along the lines that the noble Earl spoke of will have to be considered. However, I do not think that it is possible to consider them in the light of this Bill, which has its own slant and approach to the problem. That is probably the best progress we can make at present.

Lord Mackay of Ardbrecknish

Of course, I agree with my noble friend Lord Clanwilliam that to provide an adequate income for people in retirement there is a need for a second tier of pension provision. By creating incentives to opt for occupational and personal pension schemes we have allowed for people and their employers to match their provision for retirement to their resources and needs. In that way, we have also shifted the balance from a pay-as-you-go state-based system towards funded private provision. As my noble friend pointed out, assets in British pension funds amount to £500 billion, which is more than all the funds in the rest of the EC put together. We are in favour of a range of non-state pension provision, including both occupational and personal pension schemes. However, no one is obliged to join any particular scheme, which is what my noble friend suggests we ought to consider doing.

Instead, we believe that it is crucially important that individuals have a choice of pension provision, so that they can make the best arrangements for their own circumstances. My noble friend believes that occupational pension schemes will eventually be replaced by group personal pensions. We expect salary-related schemes, a very important type of pension provision, to continue to play a major role in pension provision in the future. Moreover, contracted out money purchase schemes, which first became available as recently as 1988, already have half a million members. The measures contained in the Bill to introduce age-related rebates should ensure the continued popularity of this type of provision, and thus a continued range of pension choices.

My noble friend referred to the levels of charges for appropriate personal pensions, and mentioned that these could be reduced if such plans were mandatory, since no selling would be required. Making appropriate personal pensions mandatory with this objective in mind would surely be using a sledgehammer to crack a nut. Such compulsory investment is likely to act as a disincentive to other forms of savings, some of which may provide a better return to individuals than paying more into a pension scheme.

I can appreciate that my noble friend is trying to ensure that people invest sufficient funds for their retirement income and make adequate contributions over and above the rate of the contracted out rebate. In this aim, we are of one mind, but I do not believe that this amendment proposing compulsion is the right way to go. It is better to promote confidence, to educate and to use publicity to encourage people to plan to maximise their retirement incomes. I hope that with those few words of reaction to my noble friend's proposal he will feel able to withdraw his amendment.

The Earl of Clanwilliam

I thank the Minister for his reply and the noble Baroness, Lady Seear, for her kind words. I agree that we have a problem. The most important point that I made in the amendment was that the savings should start before the age of 25. That is a vital requirement. Anything that one does before the age of 25 will give a reasonable and successful result when one is 65. That vital point is missing from my noble friend's kind remarks. However, I quite agree that this is neither the time nor the place for such an amendment to the Bill. I put it forward for consideration in the future. With those remarks, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 4 [Equalisation]:

The Principal Deputy Chairman of Committees (Lord Tordoff)

I should advise the Committee that if Amendment No. 184AA is agreed to, I shall not be able to call Amendments Nos. 184AB or 184AD to 184AG.

[Amendments Nos. 184AA to 184BA not moved.]

Baroness Hollis of Heigham moved Amendment No. 184BC:

Page 109, line 48, at end insert: ("( ) In section 44(3) (b) of that Act (as amended by this paragraph) following the words "for the relevant years" there is inserted "or, if there are more than 39 such surpluses, of those 39 which are the largest".").

Page 109, line 50, at end insert: ("( ) In section 44(3) (b) of that Act (as amended by this paragraph) following "for the relevant years" there is inserted "or, if there are more than 44 such surpluses, of those 44 which are the largest").

The noble Baroness said: I wish to move Amendment No. 184BC and speak to Amendment No. 184BD. The amendments deal with the best years rule. Our anxiety is that equalising the pension age at 65, as the Bill proposes, hurts women twice over. They not only have to work five years longer for the basic state pension, but because their SERPS additional pension is averaged over the whole of their lifetime and in the last five years they may not be in work or only in low paid work, they will receive a lower pension at the end. They work five years longer for a lower pension. We cannot believe that that is what the Government intended and these amendments would correct that situation.

The first of the amendments proposes that instead of averaging SERPS over the whole of one's working lifetime of 49 years, as with the basic state pension, it should allow a modest flexibility to discard up to 10 years under the first amendment, or up to five years on the second amendment. By dropping the 10 weakest years, as the first amendment suggests, we would bring SERPS into line with the state pension where five years may be dropped at any rate and a further five years by autocredit.

The second amendment would allow the dropping of the five weakest years, thus at least ensuring that women are no worse off than at present and low paid men—those not in occupational pensions but in SERPS—would similarly benefit. Thus, the amendment benefits women and low paid men alike. It is well targeted. Without subverting the whole-life basis of SERPS, it introduces a modest flexibility; the discard of some years which the basic state pension allows. It would permit years to be dropped at the end of the working life or, for someone in part-time work, caring for a partner, or if they are unemployed.

The cost would be relatively modest for the state. No expenditure would come until 2017 or 2024, according to whichever amendment was pursued. It would be phased in gradually and it would mean that women would not enter the new regime penalised twice over by working longer for less. I beg to move.

Baroness Seear

Very briefly, I support this amendment. I want to underline the fact that it gives some additional help to the worst paid of the people who are likely to be most poor in old age. The second point to emphasise is that it is helpful to both men and women. In these days when the earnings of both sexes are very much interrupted, the ability to choose the best years rather than having to average over the whole uneven earnings, therefore pulling down the ultimate amount of the pension, is very valuable. It is particularly valuable to the poorest people, who will need the greatest help in retirement in old age.

Lord Mackay of Ardbrecknish

The purpose of this amendment is to provide for SERPS to be calculated on the basis of the best 39 years, or, as in one of the other amendments, on the basis of the best 44 years of a person's earning. Either option would cancel out the effect of moving the SERPS working life for women to that which currently applies to men. The 39-year option represents a significant improvement on the current position for women reaching state pension age after 2017; while the 44-year option would ensure that the current position remained for most women. Either option would represent a significant improvement for men compared with current arrangements. The amendment seeks to improve—or, in the noble Baroness's words to safeguard—the position of women as the retirement age moves to 65. I am quite surprised that we have not discussed the movement from 60 to 65, but we have not. This is, as it were, a consequential amendment—

Baroness Seear

I assure the noble Lord that we shall.

Lord Mackay of Ardbrecknish

I am glad to hear that we are to discuss that point—I presume under Schedule 4. But we have not discussed all the various options that were on the Marshalled List. We seem to have passed them by.

To return to the point that I was making, the principle involved here is this: because we are shifting the retirement age for women to 65, it obviously adds five years to their working life. In doing so, we add five years to what perhaps I might call the "denominator" in the SERPS provision. The SERPS provision will obviously take account of the five extra years of working, both of the income during that time and of the years themselves. We have here two proposals from which to select; namely, that we return to the best 39 years, or that we take the best 44 years—and in order to keep matters equal between men and women, we drop the retirement age for men to the same as it was for women. The 39-year option would represent a significant improvement on the current position for women reaching state pension age after 2017; while the 44-year option would ensure that the current position remained for most women. As I have said, either option would represent an improvement for men—one of five years and the other of 10 years compared with current arrangements.

We see here another amendment that is designed to mitigate the effect of our proposals for women and to bring benefit to many better-off men. There have been a number of amendments during the course of today, and on other days, which have explored the possibility of more public expenditure when it comes to the matters that are before us.

SERPS was introduced in 1978 with a view to providing all employed people with a second-tier pension and to reduce reliance on income-related benefits. We recognised in the mid-1980s that the cost of the scheme would escalate rapidly. My right honourable friend, Norman Fowler, was then Secretary of State. The Fowler reforms were introduced, which were designed to curb that cost in the next century.

The original intention was that SERPS would represent 25 per cent. of average revalued reckonable earnings over the best 20 years of a person's life. The 1986 reforms removed the best 20 years' provision, and reduced the accrual rate in stages for people retiring after April 1999 to 20 per cent. for people retiring in 2010 and indeed later. We decided—and Parliament agreed with us at the time—that the provision of SERPS, as it was then being worked out, would become unsustainable into the next century. We therefore made those changes.

At the same time, provision was made for home responsibility protection to be extended to SERPS from April 1999. That was intended to cushion the impact of the reforms for people in vulnerable groups who would have particular difficulty building up additional pension provision. In the State Pension Age White Paper we confirmed that we would fulfil our commitment to bring in the necessary regulations to do this. We have already discussed the importance of home responsibility protection when it comes to the state retirement pension. People—it has to be said that it is most usually women, but that may not necessarily always be the case—who have responsibilities, let us say, for looking after children and who opt to look after the children at home, or those who stay at home and give up their job in order to care for an elderly relative, can receive home responsibility protection. This reduces the number of years that they have to target before they are eligible for a full state pension. That is an important aspect of the retirement pension provision that we have made in order to help women who find that they cannot have a full lifetime's contribution record because they stay at home to look after their children or perhaps to look after somebody who is unwell and who needs the kind of care and attention which they have to give up their jobs to provide. So home responsibility protection is already there for old age pensions. It will be introduced. As I say, provision is in the White Paper. We confirmed that we would fulfil our commitment to bring in the necessary regulations to do this.

The Bill also introduces a further measure that will provide help for families and working disabled people with low incomes to improve their additional pension entitlement. I am sure that everyone accepts that the same argument applies to people who have families and to working disabled people because they cannot accumulate over their lifetime the kind of income that will give them the level of pensions that we are looking for. I believe that that is one of the points to which my noble friend Lord Clanwilliam referred in his speech a few moments ago; namely, that if people are asked to make compulsory savings, there is something of a problem in providing for those people for whom such compulsory pension provision would make quite a dent in their income. Clearly, we appreciate that there is a problem with regard to these matters. We are trying to help in this regard.

Both men and women in low earning families will be helped by the two measures that I mentioned; namely, family credit and disability working allowance. These measures treat FC and DWA as if they were earnings in the calculation of both SERPS and basic state pension, thus focusing help on workers with low incomes. That help is targeted on groups of people with low incomes who will face particular difficulty in preparing for their retirement—both those with families and those with disabilities. It promotes working, and it encourages the take-up of in-work benefits such as family credit, which are there to help people who can only find low earnings. To encourage them to take up work, the family credit scheme comes into effect and makes up their income. We believe—and I believe that everybody agrees—that this is an important part of the provision to encourage people into work, to encourage those who are in work, and to make sure that those in work (even if it is quite low paid) are helped with their family responsibilities. These provisions in the Bill will be directed at this particular group of people, whom, I am sure, the noble Baroness would wish to help. I am referring to the kind of people who may find themselves with a poor contribution record towards the end of their working lives. The noble Baroness rather hurried over that argument. But I am saying that our measures on family credit and DWA will help. The improvements to family credit and DWA, such as the £10 premium for those working 30 hours or more per week as announced in the Budget, will provide further enhancement of SERPS entitlement.

Any of the improvements—such as the various systems that will come to your Lordships' House later in the Session when we come to the job seekers' Bill—on the income of low-wage earners will eventually feed through to their SERPS provision, as does home responsibility protection when it comes to people looking for the old age pension.

The reforms before us ensure the continued affordability of the scheme into the future, while protecting the position of the most vulnerable groups in our country, some of which I explained. By contrast, the amendments would make inroads into the steps we are taking to put SERPS on a long-term sustainable basis. They would raise expenditure in the long term in a poorly-targeted way. Indeed, high earning men would benefit as well as low earning women. I cannot believe that that is what the Benches opposite seek to do. I find it hard to square their normal desire to help the poorest in the community with the way in which the amendment brings in for help some high earning men who would gain from the reduction in the number of years.

We need a viable, affordable, long-term SERPS provision. It does not make sense to make available across the board the five or 10-year "free" period which the amendment would provide. Earlier this evening, when asked to find another £250 million in order to fund the frozen pensions of people in retirement abroad, the Front Bench opposite did not vote —I presume because they realised that that kind of commitment is not responsible. I presume it was also felt that in the unlikely event of their being elected into government, they would find it extremely difficult to find that amount. They probably also felt that if they had voted in favour of spending another £250 million, I would have my calculator ready to add that on to the total amount of public expenditure that they were happily and busily pledging.

Therefore, earlier this evening, we saw a small indication of what we must probably welcome as financial prudence and responsibility. It is important that we take a financially prudent and responsible attitude to the provision of SERPS. Many of the proposals on SERPS, such as those put forward by my right honourable friend Sir Norman Fowler, were designed to make SERPS a more affordable provision into the next century. If we had not done that, we would be putting on people in 2020 and 2030—just as we would be if we did not move the pension age of ladies to 65—considerable extra expenditure which is not sensible. It is certainly not sensible for those of us who hope, with a bit of good luck and keeping fit, to be there to see those days come. We hope that the taxpayers and workers at that time will be able to fund the pension provision and the SERPS provision which will be in place at that time.

Those of us who are in the happy position of being members of occupational schemes, where the funds are already earmarked, in place and being invested, are particularly privileged. We must recognise that in order to ensure that those who are not in occupational or personal pension schemes are able to obtain some money in retirement to give them a reasonable life, which is what we all want.

The proposal is that we add five or 10 years; that is, by reducing the number of years in the denominator over which the SERPS entitlement will be calculated by five years in the case of one amendment and 10 years in the case of the other. We would have to consider whether such a proposal could or would work alongside the generous assistance already built into the system by means of HRP. I have already mentioned how HRP will help women—and that is what the noble Baroness, Lady Hollis, is worried about—both in accumulating a full record for a full state retirement pension and also in helping them with SERPS provision, which we intend to take forward by April 1999 as we promised.

The SERPS position of those people—mainly, though not always, women—who have to stop work at 60 because of caring responsibilities or if they are receiving incapacity benefit, is something the noble Baroness, Lady Hollis, specifically mentioned in her speech. One of the problems, whether in this debate or in the 60/65 age limit debate, is that there is a tendency to assume that the situation today will be the same at the end of the century, in 2010, 2020 and 2030. But that is not so. The position of women in the workplace is changing—some noble Baronesses and even some noble Lords may say too slowly. But more and more women are in occupational pension schemes and will have full contribution records. They will therefore accumulate, whether it be one-eightieths or one-sixtieths, the same sort of pension provision as their male equivalents. Equally, more and more women will be working for the whole of their working life and make the necessary Class 1 contributions. That means that they will be eligible for a full state pension in their own right.

A change was made in 1977 to remove what was then the married woman's small stamp under which married women did not contribute to their own pension provision but were entirely dependent on their husband's contribution record. That is working through the system. However, more and more women will be coming to retirement—not immediately but we are looking into the next century—for whom that option was not available and therefore they did not make that choice. If they were in employment they paid class 1 contributions and therefore will be building up pensions in their own right.

We have to look ahead when we are discussing these issues: whether it be this issue which concerns changing the basis of the SERPS calculation or looking at the 60/65 argument. We must not look at the position as if nothing will change between now and 2010/2020. The position will change. It is gradually changing already as women take an equal place alongside men. They are expecting—and perfectly correctly expecting—to retain their jobs just as long as men. Consequently, many younger women may continue working until their new pension age of 65 and will get more SERPS from the extra years of earnings revaluation. In fact, they may well get a higher pension than the lower one which the noble Baroness fears.

As we look ahead to 2020 we come on to the point which arises in later amendments. I am surprised that it has not already arisen as there are down on the Marshalled List two important amendments. There is an amendment in the name of the noble Lord, Lord Monkswell, whom I so missed hearing this evening, on the subject of whether we should go to the age of 63 as a sensible compromise between men and women. But we did not hear about that. I am not sure whether we are past the amendment which introduces a flexible decade of retirement. I am quite surprised at how matters which were considered at Second Reading to be great issues have not been discussed. I prepared quite lengthily for an interesting debate on all these items. However, all of a sudden the noble Baroness, Lady Hollis, and the noble Baroness, Lady Seear, have had a change of heart and think that there is no point in inviting the noble Lord the Minister to have a discussion about the matter because the arguments are so clearly on his side and they have therefore withdrawn the amendment. I am tempted to give them the arguments whether or not they ask for them because I took so much time looking at them and working out their consequences.

The same is true of SERPS whether the age is 60, 63 or 65 or whether there is a flexible decade. The situation is moving dramatically. It is changing and will continue to change over the next few years. As we move into the next century the ratio of those available in the workforce to those who are retired will go in what I might describe as the wrong direction—certainly, the wrong direction if one is elderly. In 1991 the number of people of working age in the population was 34.4 million. In 2010 the number will be 36.2 million. In 2030 the number will be 33.7 million. In 2050 the number will be 32 million. With that kind of picture, I do not think one can say that just because today unemployment is happily corning down, and coming down quite considerably, although it is still too high, the same factors of people moving out of the workforce as readily as they do today will be the same in 20 or 30 years time when the number of people of working age will have declined by the kind of figures I have just mentioned. We cannot assume that people who today might not be able to have a job or keep a job between 60 and 65 will be in the same position when we come to the years ahead.

Women will be able to secure and stay in reasonably paid work until they are 65. With our proposals not starting until then I do not believe that one can predict forward from today. Even today just over half the men between the ages of 60 and 64 are still in work or are seeking work. Even at the age of 64, 40 per cent. of men are still working. When one considers the various occupations, such as the Civil Service, which already allow for a retirement age of 60, one can see that a great many people who want to carry on working are perfectly able to carry on and to build up SERPS entitlement, if they are still in SERPS, or to build up their ordinary occupational pension entitlements.

One has to look quite carefully at this amendment and ask whether it is really sensible. A situation is proposed where the SERPS divider, if I can call it that, will be related to the number of years people will be able to work. The idea of giving a five-year or 10-year free period is not soundly based. It ignores what the labour market is likely to look like in the years ahead. It also ignores people who are well enough off and who will gain an advantage, as I am sure the noble Baroness does not intend. It will increase the cost of SERPS on the working population at that time. The correct way forward is that which we outline in the Bill. With that explanation I hope that the noble Baroness will withdraw her amendment.

Baroness Hollis of Heigham

I have heard what the Minister said at great length. I am unimpressed by his argument but, with the leave of the Committee, I withdraw my amendment.

Amendment, by leave, withdrawn.

The Principal Deputy Chairman of Committees

In calling Amendment No. 184BD I point to an error in the Marshalled List. The amendment should refer to page 109, line 48, not line 50.

Baroness Hollis of Heigham moved Amendment No. 184BD:

Page 109, line 48, at end insert: ("( ) In section 44(3) (b) of that Act (as amended by this paragraph) following "for the relevant years" there is inserted "or, if there are more than 44 such surpluses, of those 44 which are the largest"").

The noble Baroness said: I beg to move. The Minister's reply was unsatisfactory. I wish to test the opinion of the Committee.

9.15 p.m.

On Question, Whether the said amendment (No. 184BD) shall be agreed to?

Their Lordships divided: Contents, 105; Not-Contents, 61.

Division No. 3
CONTENTS
Acton, L.	Hughes, L.
Addington, L.	Irvine of Lairg, L.
Airedale, L.	Jacques, L.
Archer of Sandwell, L.	Jay of Paddington, B.
Ashley of Stoke, L.	Jeger, B.
Barnett, L.	Jenkins of Putney, L.
Beaumont of Whitley, L.	Judd, L.
Blackstone, B.	Kennet, L.
Brooks of Tremorfa, L.	Kinloss, Ly.
Bruce of Donington, L.	Kirkhill, L.
Callaghan of Cardiff, L.	Lockwood, B.
Carmichael of Kelvingrove, L.	Longford, E.
Carter, L.	Lovell-Davis, L.
Castle of Blackburn, B.	Mallalieu, B.
Chandos, V.	Mar and Kellie, E.
Cledwyn of Penrhos, L.	Mason of Barnsley, L.
Clinton-Davis, L.	McCarthy, L.
Cocks of Hartcliffe, L.	McIntosh of Haringey, L.
David, B.	McNair, L.
Dean of Beswick, L.	Merlyn-Rees, L.
Dean of Thornton-le-Fylde, B.	Methuen, L.
Diamond, L.	Milner of Leeds, L.
Donoughue, L.	Molloy, L.
Dormand of Easington, L.	Monkswell, L.
Dubs, L.	Morris of Castle Morris, L.
Eatwell, L.	Murray of Epping Forest, L
Ennals, L.	Nicol, B.
Falkender, B.	Ogmore, L.
Falkland, V.	Parry, L.
Farrington of Ribbleton, B.	Peston, L.
Fisher of Rednal, B.	Plant of Highfield, L.
Freyberg, L.	Prys-Davies, L.
Gallacher, L.	Redesdale, L.
Gladwin of Clee, L.	Richard, L.
Gould of Potternewton, B.	Rochester, L.
Graham of Edmonton, L.[Teller.]	Rodgers of Quarry Bank, L.
	Russell, E
Greene of Harrow Weald, L.	Seear, B. [Teller.]
Gregson, L.	Sefton of Garston, L.
Grey, E.	Serota, B.
Hamwee, B.	Shepherd, L.
Harris of Greenwich, L.	Stallard, L.
Haskel, L,	Stedman, B.
Hilton of Eggardon, B.	Stoddart of Swindon, L.
Hollick, L.	Strabolgi, L.
Hollis of Heigham, B.	Taylor of Blackburn, L.
Holme of Cheltenham, L.	Thomas of Walliswood, B.
Howie of Troon, L.	Tope, L.

Tordoff, L.	White, B.
Turner of Camden, B.	Wigoder, L.
Varley, L.	Williams of Elvel, L.
Wedderburn of Charlton, L.	Williams of Mostyn, L.
Whaddon, L.	Young of Dartington, L.

NOT-CONTENTS
Addison, V.	HolmPatrick, L.
Ailsa, M.	Howe, E.
Aldington, L.	Inglewood, L. [Teller.]
Astor of Hever, L.	Leigh, L.
Balfour, E.	Lindsay, E
Birdwood, L.	Liverpool, E.
Blatch, B.	Long, V.
Blyth, L.	Lucas of Chilworth, L.
Boardman, L.	Lucas, L.
Borthwick, L.	Lyell, L.
Brabazon of Tara, L.	Mackay of Ardbrecknish, L.
Brougham and Vaux, L.	Mackay of Clashfern, L. [Lord Chancellor]
Carnegy of Lour, B.
Carnock, L.	Miller of Hendon, B.
Cavendish of Furness, L.	Monteagle of Brandon, L.
Clanwilliam, E.	Northesk,E.
Clark of Kempston, L.	Rennell, L.
Cranborne, V. [Lord Privy Seal.]	Rodger of Earlsferry, L.
Cumberlege, B.	Seccombe, B.
Dean of Harptree, L.	Shaw of Northstead, L.
Dixon-Smith, L.	Stewartby, L.
Ferrers, E.	Stockton, E.
Flather, B.	Strathclyde, L. [Teller.]
Fraser of Carmyllie, L.	Thomas of Gwydir, L.
Glenarthur, L.	Torrington, V.
Goschen, V.	Trumpington, B.
Gray of Contin, L.	Ullswater, V.
Harmar-Nicholls, L.	Vivian, L.
Harmsworth, L.	Wise, L.
Hayhoe, L.	Wynford, L.
Henley, L.	Young, B.

Resolved in the affirmative, and amendment agreed to accordingly.

9.25 p.m.

On Question, Whether Schedule 4, as amended, shall be agreed to?

Lord Monkswell

The Minister complained earlier this evening that he had not heard my contribution on the flexible decade of retirement and the alternative dates upon which a common retirement age could be determined. In agreeing to the previous amendment, the Committee has demonstrated that it wants to see, and has obtained, some improvement to the SERPS for the vast majority of comparatively low paid people.

We must recognise that we have a complicated position regarding the requirement to ensure that men and women retire at the same time. One of the ways in which we can look at the problem is from the point of view of the cost of any change to the Exchequer. Another is to look at the fairness of the position. There is a further view. It is the message that our decision sends to the people of this country. The message we have already agreed this evening is that this place wants to be fair to those people who probably do not have a personal pension or an occupational pension. They are probably among the least well off men and women in our society.

We have taken that decision, and we are all glad that we have done so. However, we are still faced with the question of what common retirement age we should aim for. There are those who suggest that we should have a common retirement age at 60. There are some who suggest that it should be 63. The Government have suggested 65. My preference is for the age of 70, and I shall seek to explain that.

We must recognise the message that we send out to the people of this country. If we say that we shall have a state retirement age of 60, we are saying effectively that we do not expect people to work over 60. We are expecting them to work to 60 and then to retire. That would be a sad message to convey. Unfortunately what has happened over the past 10 or 15 years is that more and more people have been forced out of work and effectively retired. In the earlier debate, the Minister gave the figure which shows that 50 per cent. of people between the ages of 60 and 65 are effectively unemployed. I hesitate to ask what the figure would be for those between the ages of 55 and 60.

As a result of economic circumstances, one of the problems is that people have come to expect that they will be finished on the labour market at the age of 50, 55 or 60, when 15 or 20 years ago women could have expected to work until they were 60 and men until they were 65. It is a sad message to send to people that they are considered to be valueless and worthless to our society because of the statement which the Government accept—that it is okay to be retired and not to work at a relatively young age.

One of the messages we could send today on the subject of a common retirement age is, "Yes, we expect and wish the citizens of this country to continue to be economically active". We know that they can be because people live longer and are comparatively more fit. There are also many more jobs which do not require the expenditure of hard physical labour.

We want people to be economically active for as long as possible and that is one of the reasons why I argue that the state retirement age should be 70. Implicit in that is a recognition by the Government and Parliament that we expect people to work until they are 70. If the economy is not running in such a way as to ensure that people can be economically active, it should be the job of Government and Parliament to ensure that steps are taken to enable people to contribute usefully to society.

It is important to recognise that we expect some people to work in particular ways but where there is no market for their labour in the general accepted sense of that term. I am talking in particular about women, although men enter the category too. I refer to carers; that is, the carers of young children or of elderly or disabled relatives. We recognise the changing attitude to the concept of looking after children or caring after relatives.

In the Bill the Government acknowledge that the work of carers should be recognised. However, they undervalue the work. I argue that, instead of the years spent as a carer counting towards the basic old age pension, a credit should be made to the SERPS contribution record that is equivalent to average earnings. That credit should be given for the years when they were performing that caring role and contributing so effectively to the well-being of our society.

it is only right that Parliament and Government should recognise the role that women in particular play in that caring role. They should recognise the contribution that they make to the well-being and economy of our society. I argue that there should be a credit to the SERPS contribution record of those people who are carers and not in the normal labour market.

The Minister was curious as to why we did not move the amendments which identify the different ages for common retirement and so forth. We must recognise that in Committee it is probably useful to probe the Government on this issue and to ask for information. I am glad to have opened what I hope will be a probing debate and asked the Government for their response to my contribution and those of other Members of the Committee.

9.30 p.m.

Baroness Lockwood

I support the opposition to Schedule 4 being agreed to. On occasions, I reach different conclusions from my noble friend but, despite the slight improvement made by the passing of the previous amendment, many parts of the schedule make the position more detrimental to women.

In responding not only to the amendment which my noble friend moved but also to the other amendments which the Minister thought would be moved, he put forward once again the case for equalising the pension age at 65. Once again, his arguments left out a number of important considerations. Of course, he failed to acknowledge that women will be worse off financially under the Government's proposals and, secondly, that men are moving in a reverse direction because 40 per cent. of men are already retired before they reach the age of 65.

As the Minister said, it is true that an increasing number of women are going into paid employment. Regrettably, it is true also that, under the Government's employment policies, a large proportion of those women are going into part-time low-paid employment. Therefore, they are failing to build up a sufficiently large pension to support themselves in retirement.

The Government's assumption is that by 2010, 90 per cent. of women will have a pension in their own right. One has to ask what kind of pension that will be given the following factors. First, in 1992 only 54 per cent. of full-time and 19 per cent. of part-time women workers were in an occupational pension scheme.

Secondly, 2.25 million women in work earn less than the lower earnings limit and therefore do not contribute even to the basic pension. Thirdly, 1.1 million women workers still pay the married women's national insurance contribution, which means that they are relying on their husband's pension rights and not their own.

On my reckoning, that means that at least some 7 million women of the 10 million women workers will not earn anything like an adequate pension by the year 2010 or even by the year 2020, when the Government believe that they will have a full pension. The Government's proposals fail to address historic and contemporary social factors which constitute indirect discrimination against women.

Nor can one be certain that the Government's actuarial calculations will have the outcome that they expect. Government actuaries have cautioned against their likely accuracy when they move into the years ahead. That doubt about the forecast can certainly be supported by the fearful predictions that we had a few years ago about the demographic timebomb which was to go off in the early 1990s. It was predicted that the number of 18 year-olds would be reduced drastically and therefore there would be a great shortage in the labour force. Certainly, the number of 18 year-olds coming out of schools has reduced drastically but the difference from the predictions is that instead of there being a shortage in the labour market unemployment among 16 to 19 year-olds has been running at 22.4 per cent. and among 20 to 24 year-olds at 16.3 per cent. Similar consequences may follow if more 60 to 65 year-old men and women continue in employment. Indeed, the Government's pension scheme for the Civil Service now has a compulsory retirement age of 60.

In May 1993, 53 per cent. of Civil Service pensioners drew a pension of less than £3,000 per annum—that is, £57.70 per week. Although the normal retirement age in the Civil Service has been reduced to 60, those with very low pensions had been able in the past to continue work in order to accumulate a more adequate pension. However, it is now government policy that they must all retire at the age of 60, as a means of reducing the number of civil servants.

Women on the lowest earnings, and, thus, on the lowest pensions, will not be able to draw the state pension which helps make retirement possible for a further five years under the Government's present Bill. The normal retirement age of 60 is now common throughout the public sector and the finance industry, but that will not be so in the future. I really believe that this is double-think on the part of the Government. If they are having to reduce the retirement age in the Civil Service, thus creating such problems for low-paid civil servants, what will happen to workers in other industries?

We must not create more poverty or perpetuate the already existing poverty in retirement. There is no doubt that women would lose out by increasing the retirement age to 65. I suggest that the Government need to rethink the whole of this section of the Bill and, perhaps, come back to us with an improved Schedule 4.

Baroness Hollis of Heigham

I, too, should like to support my noble friend Lord Monkswell in his opposition to Schedule 4 standing part of the Bill. I do so in response to the Minister's invitation at an earlier stage in his recent, extremely long speech when he requested the benefit of our thoughts on the flexible decade of retirement. The Minister said that he could not understand why we had not reached the stage where we could explain to him the implications of that flexible decade of retirement. However, now that we are discussing Schedule 4 which would equalise pension ages at 65 and, therefore, remove the possibility of a certain degree of choice for men and women, I am sure that the Minister wants to hear the arguments in favour of the flexible decade of retirement that, unfortunately, we were not able to explore in rather greater depths earlier this evening.

As we know, the world of work has changed hugely since the 1960s. Yet, we have a fixed retirement age devised when most men had very similar working lives. They worked continuously from the age of 16 to 65, often with the same employer, while the wives worked without pay at home. However, over the past 20 or 30 years, many events have come together. For example, we have seen growing unemployment with 40 per cent. of all men being unemployed in the past five years. We have seen greater job mobility in that men and women together have, on average, between five and six employers. We have seen a fragmentation of full-time jobs into part-time fragments which, if one is fortunate, can be reclustered into a portfolio. We have also seen men dropping out of the labour market earlier; indeed 57 per cent.—that is, more than half—of all men between the ages of 55 and 64 are not in work, compared to only 8 per cent. in 1977. Moreover, we have seen women joining the labour market both as full-time and part-time workers. While the years spent in child care have reduced, we have often seen increased years spent in caring for the elderly.

Therefore, compared to 20 or 30 years ago when most men worked and expected to work full time until the age of 65 and most women expected to be supported by their husbands' earnings and pension, that similarity of experience has now fragmented for the reasons that I have outlined. Each family is now positioned differently. What we ought to do, what we want to do, what we should all be able to do, and what we should choose to do will vary enormously. Yet while we recognise that increasingly divergent experience from family to family we still persist in a fixed state retirement age which will be even more inflexible when men and women are both required to retire—if this Bill goes through unamended—at 65.

We need to have our pension provision reflect the same flexibility that people now experience in their working lives. Men, for example, may contentedly retire with a decent occupational pension at 55 or 60 if they are in certain jobs such as the Armed Forces, the police, mental health nursing or if they are air pilots. Indeed, 43 per cent. of occupational schemes permit retirement at 63 or earlier. But, equally, they may want to continue to do full-time work until 65. Perhaps if they are an MP, or in another job equally rewarding and not too demanding, they may seek to continue their employment beyond 65 to 70. On the other hand, they may suffer poor health and not be fit to return to manual work. Although a man might be fairly fit himself his partner, or in her case her partner, could develop, for example, multiple sclerosis or severe rheumatoid arthritis and may wish to work part-time or take early retirement. Equally, someone may be made redundant, and, particularly if it is a man who is unskilled or has unsuitable skills, at the age of 57 or 62 he is unlikely to work again.

Equally, if there are several years disparity in ages between husband and wife—one might be 65 and one might be 61—they might wish to retire at the same time. I have given a dozen different examples of the ways that men and women and their families are now differently positioned from what they might have expected 20 or 30 years ago. Every Member of the Chamber could add several more such instances to the ones I have given. They are all different. Yet with this Bill the Government are trying to shoehorn all of this experience, all of this diversity, all of this variety and all of this need for choice into one common state retirement age. It is absurd. Why should the state make that decision when men and women and their families could and should make that choice—a choice which reflects their circumstances, their needs and their wishes? They may have to leave the labour market earlier than they want; they may want to leave the labour market earlier than they are permitted, but the state is not allowing people to make that choice for themselves.

If we are to have a flexible life of work—as the Government insist is the future ahead of us—why should we have an inflexible year of retirement? Why not allow different retirement choices before as well as after the pivotal year? Of course, families must make that choice in the light of its financial consequences. But if, for example, we supported a flexible decade of retirement but with a pivotal year of 63—that is our alternative to Schedule 4—it would cost no more than present arrangements. The increase in start-up costs would be offset by the fact that men and women now have to have an income when not in work. Whether one calls it income support, incapacity benefit or state pension it still for the most part has to be paid. However, with a pivotal year of 63—the position that certainly we on these Benches and I believe Members on the Liberal Democrat Benches share—and a flexible decade of retirement, if people retired before that date they would have a reduced pension. If they retired later than that, they would have an increased pension.

I accept that those seeking to retire earlier may be the neediest who would then have a proportionately lower state pension—but that is the case now—while the great majority of families under such a proposal would instead be free to make the choice of when to retire as best suits them, their health, their wealth and their family circumstances. A further advantage to a flexible decade of retirement, and another reason for agreeing with my noble friend that Schedule 4 should not stand part of the Bill, is that such a proposal is attractive to employers. That is why the National Association of Pension Funds also supports a flexible decade and a pivotal year of 63 because it gives flexibility not only to employees but also to the employer who can agree with staff individually the retirement arrangements that suit them both. The NAPF has suggested it would expect an 8 per cent. to 9 per cent. compound discount below or addition above the pivotal year to be financially cost neutral.

Such a proposal would not be especially complex to administer as that principle is already in place for those who stay on in work past 65 and add to their basic state pension. I repeat that with a pivotal year of 63 the proposal is certainly financially neutral and may even generate modest cost savings. It is fair as between men and women. It is flexible. It places the choice back where it belongs, with the families, the men and women who have earned their pension rights.

That is why I join with my noble friend in believing that Schedule 4 should not stand part of the Bill and instead the Committee should be considering a flexible decade of retirement.

9 45 p.m.

Baroness Seear

The Liberal Democrats have long had a policy of a flexible decade of retirement. We are delighted that the Labour Party has caught up with us on yet another item of policy. We therefore support the proposal.

Lord Mackay of Ardbrecknish

I am grateful that the noble Baroness, Lady Hollis of Heigham, has come off the fence and told us what the Labour Party's policy is i n this regard. It is a pity that she did not do so in the form of moving an amendment which would have provided us with a proper debate on that proposition instead of telling us about it when we debate the Motion that Schedule 4 stand part of the Bill and the option of 65.

Baroness Seear

Had she done so, we would have had an even longer speech from the Minister, because he had to fill the time.

Lord Mackay of Ardbrecknish

I advise the noble Baroness not to tempt me. As I said in the first debate today, yield not to temptation. That is easier in this case but I had a great many words to say about flexible decades of retirement and retirement ages of 63, 65 and the like.

I turn to the point at issue; namely, Schedule 4. I could reasonably assume that opposition to Schedule 4 standing part of the Bill indicates some disagreement with some of the detail of Schedule 4, but I am pretty certain that it does not indicate that at all. It indicates a desire for a general debate. In fact, a more relevant point for a general debate is Clause 114 which introduces the proposition of a common retirement age of 65. Therefore, I may resist the temptation—although I shall leave it in front of me in case I decide that I ought not to resist it —to explain in some detail what Schedule 4 actually does. However, it is tied in with Clause 114 which introduces the retirement age of 65.

Clause 114 answers the question, which came about due to the fact that, as a result of the changing face of society, we have all decided that the different retirement ages for men and women of 65 and 60 are no longer relevant in today's world and that men and women should retire at the same age. There are as many propositions as one likes.

The noble Lord, Lord Monkswell, in a welcome intervention—I had thought that he had taken a vow of silence this evening—suggested that 70 ought to be a possibility. We do not have a retirement age of 70 in front of us. If the noble Lord could give guarantees that we would all reach 70 hale and hearty, we might all sign up to his proposal very quickly. However, as I suspect that he is unable to give that guarantee, we shall have to stay with the options which are in front of us.

The options are to fix on the age of 60, to fix on 65, to fix on something in between or to fix on something called a flexible decade of retirement. An important part in that argument is where one places what is called the pivot. I shall not go into the interesting actuarial proposition at great length, but it is one of the problems. One cannot merely say that we shall have a flexible decade of retirement without looking at the question of the pivot. The noble Baroness has helped me and suggested 63 would be the pivot. I was listening to her with some interest. I do not wish to become diverted too far because the proposition before us is whether we agree or disagree with the age of 65. The option of debating those other choices in some detail really has passed us by. As I explained already, I am deeply sorry that it passed us by. However, the fact is that wherever one makes the pivot—whether at 65, as one could do, or at 63—there is the choice that the person who retires earlier than at the pivotal point will have his or her pension abated not just for the two or three years between 60 or 61 to the pivot, but for the remainder of his or her life.

We are all concerned about pension provision over the whole of retirement. I believe that the flexible decade, with the pivot at 63, has drawbacks for the individual who decides to retire at 60. There is some evidence from other countries that flexible decades mean that people retire at the earlier age without thinking about the consequence. If the pivot is at 63 or 65, one does not have one's pension restored to what it would have been if one had retired at that point. One loses every year for the rest of one's life. That is the situation.

I am glad to see that the party opposite has managed to put out a press release already about the small victory it had earlier this evening. If I need to do so I might even read out the noble Baroness's words. I wonder whether it was prepared before the event; I do not know.

In Government, we were confronted with the problem of equalising the state pension age. There was some suggestion creeping into the speech of the noble Baroness, Lady Hollis, that somehow the state was compulsorily retiring people at whatever age the state chose. That is not the case. People can go on working, as indeed they do in your Lordships' House, long after the state retirement age. Currently one can retire at 60 or 65 and be eligible for the retirement pension. It is important that we differentiate in the terminology. Although we are all guilty of shifting between one and the other, I am sure that we all know exactly what we mean: that people can work on after the normal retirement ages of 60 and 65.

However, in our splendid document, Equality in State Pension Age, we address the problem. In December 1991, we put forward the options. We looked at the ages 60, 63, 65 and the flexible decade. In December 1993 after consultation and careful consideration of all the options, with the publication of the White Paper we announced our intention to equalise the state pension age at 65. The change will be phased in gradually between 2010 and 2020, allowing people, we believe, plenty of time to alter their pension and retirement plan. That is what Schedule 4(1) provides for. It states that pensionable age is 65 for men. It is 60 for women born before 6th April 1950, 65 for women born after 5th April 1955, and, according to a table which is laid out, for every two months that passes one month is added to the retirement age. During that decade, women will gradually move from 60 to 65. That is a 10 year phasing which starts in 15 years' time.

We believe that 65 is the right choice. The consensus of opinion is also moving towards that view for the only realistic option for the future. Both the Social Security Advisory Committee and—dare I mention it?—the Commission on Social Justice set up by the party opposite recommended a retirement age of 65. Equalising the retirement age at the age of 65 recognises women's changed role in the workplace. I discussed that briefly when I was responding to the last amendment. Women represent a large and increasing share of the labour force; they are able to make their own provisions rather than relying on their husbands.

It is also true that we are all living longer and healthier lives. People who are now drawing their pensions do so on average for four years longer than in Beveridge's time. That leads me to the argument about the demographic effects of two factors coming together, not just in our population but in the population of most of the economically advanced countries in the world and certainly all our European neighbours. There is an increasing proportion of elderly people who have to be supported by the working population of the day. That working population is declining. If we do not take these measures then the cost of pensions would rise from just under the £30 billion now to over £66 billion in 2030. That reflects the real growth in pension value through the maturing of the state earnings related pension, as well as increased numbers. Equalising at the age of 65 will save £5.2 billion in benefit expenditure by 2030. I believe that that is an important aspect.

If that were all and we had a population which we thought could afford to fund that, then we might be prepared to accept that increased expenditure. I discussed it during the last debate, but the simple fact is that the number of people over the state pension age is increasing. The population of working age is decreasing. What is called the support ratio—the number of people of working age per pensioner—is declining. For example, I give as base figures the current scheme if we did nothing. In 1991, four years ago, there were 10.3 million people of state pension age. That increases slowly until it reaches a peak in 2040 of 16.3. By 2050 it falls back a little to 15.8. If we reduce the state pension age to 60, then the position is that the figures increase from 10.3 million at the beginning of this decade to 15.3 million in 2020, 17.9 million in 2040 and then it falls back to 17.5 million in 2050.

With the age at 63, the same trend is quite apparent, although at a lower level as the age has increased. At the age of 65—which is what we propose—the number of pensioners rises in each decade: 10.3 million, 11.7 million, 11.6 million, 13.7 million in 2030, 14.7 million in 2040 and 14.0 million in 2050.

The population of working age moves in the opposite direction. Without any change in the retirement pension age, in 1991 it was 34.4 million, in 2010 it will be 36.2 million; in 2030 it will be 33.7 million; and in 2050 it will be 32.0 million. If we reduce the age to 60, in 2030 it would be 31.6 million people of working age and in 2050, 30.2 million.

Our proposals would bring about 35.8 million in 2030 and 33.8 million in 2050. A quick calculation will show that the support ratio—the number of people of working age per pensioner—if we do nothing, would move in each decade from 3.3 at the beginning of this decade to 3.1 in 2010, 2.7, 2.1 and 2.0. If the age is decreased to 60, then by 2030 it is 1.8 and by 2050, 1.7. The age of 63 is naturally better, but even that is not what is proposed and it would be 2.2 and 2.1. The age of 65 keeps us in the middle between 2.0 and 3.0 in 2030 and 2050. Thus there are compelling demographic reasons for shifting the pension age to 65. Those, taken together with the financial ones, are the first two arguments. There are other arguments to do with our competitors. But I do not want to get a reputation for making long speeches.

Noble Lords

Oh!

Lord Mackay of Ardbrecknish

I read out a table at Second Reading.

Baroness Hollis of Heigham

I think the Minister wants us to vote again!

Lord Mackay of Ardbrecknish

I am enjoying myself. Am I not allowed to? I read out a table at Second Reading which showed that many of our competitor countries were moving to 65. It showed Denmark already at 67; Iceland at 67; and Norway at 67. It was quite interesting. That is the third reason: the international trend means that we have to guard against damaging our ability to compete internationally.

Part II of the schedule provides equality for men and women in certain pensions and other benefits. It also introduces other changes which will improve the retirement income of many people. I have already mentioned some of them, but they are worth putting on the record. I fully accept that some of them are important. It will equalise the treatment of married couples, irrespective of whether the man or woman is the older partner. For example, the older spouse, be it man or woman, will, on reaching 65, be able to claim an increase in respect of a dependent spouse who has not yet reached pension age. Similarly, where both partners are of pension age, either the husband or the wife may be able to claim a pension of their own based on their partner's contribution where their own record is incomplete.

Secondly, it will increase the amount of basic state pension payable by deferring a claim from 7½ per cent. a year now to approximately 10 per cent. from 2020. The present ceiling of five years' deferral will be abolished. These changes will make postponing a pension claim worth more, and will enhance flexibility and the options that are available. In other words, they will introduce a little flexibility after 65 and not close it down after five years. Powers will be provided to equalise the award of graduated retirement benefit for men and women. That will also come into effect in April 2010.

Both in the introductory clause to this schedule and i n the schedule itself, we accept that it is wise and sensible from the point of view of the taxpayer, of the economy and of pensioners themselves in the years to come to make this decision now in the interests of all those people, and that we should go for a common pension age for men and women of 65. That is what the clause that leads into Schedule 4 does, and that is what Schedule 4 does. I heartily commend the schedule to the House.

Baroness Hollis of Heigham

Before my noble friend decides what he wants to do about his proposition, could I ask the Minister how many of our competitors who are moving to a higher retirement age also allow flexible retirement from a younger age? I understand that it is rather a lot.

Lord Mackay of Ardbrecknish

I am looking at a table. I see just one proposal to make pension age flexible from 61 to 70 in Sweden. But I do not see any other proposal in the other countries. Of course, I never believe that I am totally the fount of all knowledge, and I may be missing something. Yes, I see that currently Belgium has a flexible arrangement, from 60 to 65; it is considering equalisation, which I do not think helps: That is what I am advised. Then there is mighty Luxembourg, in which the age is 65 currently and which is considering flexibility, but I am not sure to what extent. Those are the two countries (along with a proposal from Sweden) that propose to move from 65 to a flexible age. But our major competitors are certainly not considering that.

Baroness Seear

Perhaps I might drop one point into the discussion over the flexible retirement age. The Minister quite rightly made the point that people who took the earliest possible retirement age under a flexible decade would have a much lower pension, and that that lower pension would continue. I think he was implying that that would cause considerable disadvantage and hardship as people got very much older. My party at one point put forward an idea in favour of a flexible retirement age but recognised the difficulty of having it actuarily adjusted and the problems as people grow older. The suggestion was that those who survived to a ripe old age—I think we said 80, but that could be fixed at whatever was appropriate—should then be brought up to full pension. By that time their numbers would be greatly reduced. People still die during that period so the cost would also be considerably reduced. However, there would be security when people reached the age of 80, which is normally thought of as being so old that there is very little that they can usefully do.

Lord Mackay of Ardbrecknish

Even at this time of night and with limited attendance in your Lordships' Chamber I make no observations about 80 being a great age or not a great age. It sounds as though the noble Baroness, Lady Seear, is playing a typical Liberal trick in trying to have her cake and eat it. She sees a major problem and tries to find a nice, balancing way out. I hear what she says. If the Government fell for that, in no time at all it would be 75, then 70 and then we would be arguing about bringing the pivot down altogether. The complications of a flexible decade of retirement, added to the difficulties it may cause for individuals who are tempted into thinking about today rather than about the 10 or 20 years that lie ahead of them, do not make it an attractive proposition.

Lord Monkswell

I thank all those who contributed to the debate. The speeches ranged somewhat and I was concerned that the Minister did not see fit to comment on my suggestion regarding the value of the contribution made to society and our economy particularly by women through the work that they do at home, either caring for young children or elderly disabled relatives. Perhaps the Minister will take that matter away and consider it.

Lord Mackay of Ardbrecknish

I do not want the noble Lord to think that I have not noticed it. I responded earlier in relation to home responsibility protection to protect people who take time off work to look after children or elderly parents. However, the Opposition seem to be so little bothered by that that we rolled over that amendment by it not being moved. I am deeply sorry about that because I wanted to debate the issue.

Lord Monkswell

I shall not rise to that comment. One of the difficulties with which the Government are faced is the practical realities of their policies rather than the theory of their numbers. In that regard I recognise the contribution made by the noble Baroness, Lady Lockwood, when she pointed out that civil servants are being compulsorily retired at 60, yet the Government are effectively saying that they will not be able to collect their state pension until they are 65. Even though some civil servants are well paid and have inflation-proof pension provisions and so forth, a number of people—particularly women—are low paid and will effectively have a gap in their provision. The Government effectively made no response to that.

One of the other practical aspects of the Government's policies concerns me. The Minister mentioned various figures and what would happen to the state pension bill if we had a common retirement age of 60. He was indicating that there would be a 30 per cent. increase in one year—2040 or 2050—which in absolute numbers sounded enormous. In fact the reality is that there would have to be contributions to pay for that, and the Minister did not mention that side of the equation.

The Minister went through a whole list of figures in relation to the number of people it was computed would be in the retired or the working population. But he did not say what proportion of that computed working population would be productively employed in the economy. If we look at the situation now compared with what it was 20 years ago, we can see that the Government have an abysmal record when it comes to ensuring that people of working age in our country are productively employed.

Obviously, we shall face problems if we reduce the retirement age for both sexes and at the same time do not harness the productive potential of those of working age. But it does not need to be like that. We could have a government who say, "We shall make use of all the people. We shall productively employ them; and where they are not productively employed in the market economy we shall recognise the contribution that they can make to the benefit of society and the economy by working at home in an unpaid capacity." But the Government have not sought to address any of those practical realities. What they have done is to decide on a figure for a common retirement age which will be the cheapest option they can get away with and sell politically and then call in aid to suggest how responsible their decision is a whole set of figures which are suppositions about the future and which do not reflect what could be the reality or what would be the reality if the Government stayed in power until that point in time.

I recognise that we still need to tease out a few more elements in this whole debate. Given that the amendment which was passed prior to this debate changed Schedule 4, it would be unfortunate if we did not agree to Schedule 4 as it is amended. I shall therefore withdraw my opposition to the schedule being agreed to.

Schedule 4, as amended, agreed to.

Clause 115 agreed to.

10.15 p.m.

Clause 116 [Additional pension: calculation of surpluses]:

On Question, Whether Clause 116 shall stand part of the Bill?

Baroness Hollis of Heigham

I do not wish to take up very much of the Committee's time but we are concerned about this clause which the Government have presented as a technical change for the annualisation of SERPS. We do not believe it is technical. We believe that it has serious implications. As far as we can tell, its effect will be to cut the value of SERPS—SERPS is the pension which women and the poorest paid men enjoy—by about 14 per cent., or more than £2.5 billion in current terms, by 2020. If so, that is not exactly technical.

The clause changes the basis for revaluing earnings each year on which SERPS is based. At the moment total PAYE earnings up to the upper earnings limit are revalued to retirement age and then the lower earnings limit is deducted. Under the new arrangements the lower earnings limit will be deducted and only the excess will be revalued each year. In other words, it will be annualised. In the process the Government will cut 14 per cent. of SERPS' value. That was never part of the original legislation which made clear that revaluation would be done at the point of retirement and not at each and every year. We fear that this is a device for cutting still further the value of SERPS and therefore the value of the retirement pension for women and poorer paid men.

The Government have already halved the value of SERPS by averaging it over the lifetime, minus five years as a result of tonight's amendment, rather than the 20 best years. That cut, along with others, will further severely reduce the value of SERPS. We believe it is deeply unfair. Why are the Government doing it except to save still more money from those who are among the poorest of our population?

Lord Mackay of Ardbrecknish

This clause introduces new subsection (5A) into Section 44 of the Social Security Contributions and Benefits Act 1992. The new subsection amends the method of calculation of State Earnings Related Pension for those who qualify after 5th April 2000.

The change (known as annualisation of SERPS) will correct an anomaly, which has arisen since moving to prices indexation and has meant that small entitlements are going to groups who were never intended to receive SERPS, such as the self-employed.

The present calculation revalues total earnings (up to the upper earnings limit) for each year in line with the increase in average earnings and then deducts the annual lower earnings limit for the last complete tax year from each year's revalued earnings to give a surplus for each year. Because the lower earnings limit grows in line with prices, SERPS entitlements have been growing in an unintended way. Annualisation will change the calculation so that the annual lower earnings limit is deducted before revaluation takes place. That simply means that when one looks back at a person's working life in each year the amount which is used for the revaluation calculation up to the date of retirement is the difference between the salary, if it is below the upper earnings limit, and the lower earnings limit. It will be on that portion above the lower earnings limit which will be revalued.

The current situation was not intended when the position was changed. The current situation is that the total and the lower earnings limit are revalued on a different basis. I shall not make any secret of the fact that this is not a small technical change. It is a technical change, but it is certainly not small. The change will result in a public expenditure saving of £400 million in 2010 rising to £2.3 billion by 2050. The maximum weekly reduction in individual entitlements is estimated to be £2.70 in 2000, rising to £4.90 in 2020 at 1994–95 prices. This effect is a flat rate one and applies to those with a complete work history of earnings above the lower earnings limit since 1978. For those with broken work records the effects will be smaller. There will be no loss for people reaching pension age or who qualify for widow's benefits before 6th April 2000. This fulfils undertakings made during the passage of the 1986 Social Security Act that no changes would be made to SERPS this century.

The purpose of this clause is, as I said, simply to correct an anomaly and to restore policy intention that State Earnings Related Pension entitlements are based on average earnings between the lower and upper earnings limits. I commend the clause to the Committee.

Clause 116 agreed to.

Clause 117 agreed to.

Baroness Hollis of Heigham moved Amendment No. 184BE:

After Clause 117, insert the following new clause:

Improved pension rights for separated women

(".In section 48 of the Social Security Contributions and Benefits Act 1992 after subsection (1) there shall be inserted—

"(1A) Where a person has reached pensionable age and is married but either—

1. (a) is not residing with his spouse and has been residing apart from his spouse for two years previously, or
2. (b) is residing apart from his spouse because the spouse is resident in residential accommodation (other than as a temporary resident) and
3. (c) in respect of the tax year before he reached pensionable age and any previous tax year, does not, with his own contributions, satisfy the contribution conditions for a Category A retirement pension,

then, for the purpose of enabling him to satisfy those conditions (but only in respect of a claim for a Category A retirement pension), the contributions of his spouse may to the prescribed extent be treated as if they were his own contributions.

(1B) In this section— residential accommodation" means either accommodation provided under Part III of the National Assistance Act 1948 or accommodation in a nursing home or residential care home as defined in Regulation 19 of the Income Support (General) Regulations 1987 if such accommodation is not provided under Part III of the National Assistance Act 1948;

"resident" means a person provided with residential accommodation;

"temporary resident" means a person whose stay is unlikely to exceed 52 weeks.").

The noble Baroness said: Again, I shall be brief. This amendment deals with the other side of the discussion which we had earlier on occupational pensions and residential care. Nearly all elderly married women do not at the moment have a basic state pension in their own right which is worth £58 a week. Instead, they have the Category B pension, which is the married woman's dependant's pension worth only £35 a week. If such a woman were divorced she would, on the substitution rule, be eligible for the full basic pension of £58. But if she is elderly and separated from her husband —perhaps for religious reasons they are reluctant to be divorced or are living apart because the husband has, say, Alzheimer's Disease and is living in a residential home—she remains eligible only for the dependant's pension of £35. If she is divorced or widowed she gets £57. If she is separated by the illness through which she nursed him for many years, she gets just £35.

A number of women are affected by this. It appears that there are about 83,000 women over the age of 60 whose husbands are not living with them either because of marital breakdown or because of long-term illness. This amendment will ensure that such women are no worse off than if they were either divorced or widowed. I am glad to say that we recognise that this is a diminishing problem in time because more and more women will qualify for the basic state pension in their own right. However, in the meantime it is a problem for many women who are among the poorest of our elderly.

Such an amendment might help to lift them above their dependence on income support. I very much hope that the Government will feel able to accept the amendment. I beg to move.

Lord Mackay of Ardbrecknish

As the noble Baroness has explained, this amendment seeks to extend the scope of what are known as the "substitution provisions" to people who are married, but are not residing with their spouse. The "substitution provisions" allow people whose marriages have ended by death, divorce or annulment and who do not remarry before reaching pension age to improve their basic pension entitlement by substituting their former spouse's contribution record for their own for the period up to the termination of the marriage.

The provisions were introduced in 1957 primarily to help divorced women to gain pension entitlement. As the Committee will be aware, historically, many married women did not work or pay full rate contributions and were reliant on the "married woman's" pension, based on their husband's national insurance contributions. Where a couple divorce before pension age, the woman loses access to the "married woman's" pension and she may not be able to qualify for a basic retirement pension on the contributions she pays following her divorce.

The "substitution provisions" are therefore designed to help her to gain entitlement to a basic retirement pension in her own right to replace the "married woman's" pension to which she would have been entitled had her marriage not ended.

Separated couples do not come within the scope of the substitution provisions for the simple reason that the fact that a couple are not residing together does not exclude the woman from entitlement to the "married woman's" pension.

I can well understand the noble Baroness's reasons for seeking this amendment. The "married woman's" pension, or "married person's" pension, as it becomes under the provisions of paragraph 20 to Schedule 4 to this Bill, is paid at a lower rate than the standard basic pension. However, we need to look at the amendment in the context of the retirement pension provisions as a whole.

Entitlement to state retirement pension for couples has always been linked to legal marriage. As there are over 10 million recipients, half a million of whom reside abroad, the conditions of entitlement must by necessity be easy to understand and administer. The fact that a marriage has been terminated by divorce is fairly readily ascertainable —a decree absolute will have been granted. However, establishing whether the "residing apart for two years previously" condition at paragraph (a) of the amendment is satisfied could involve detailed and time-consuming inquiries of both parties.

Turning to the point about where separation occurs because one spouse is temporarily or permanently resident in residential accommodation, that is part of the wider issue that we discussed earlier. I believe that I indicated that I understand the importance of that issue. I have already discussed our debate with my noble friend Lady Cumberlege—although admittedly briefly because that discussion occurred during one of the Divisions. However, I have discussed the matter with my noble friend and shall certainly draw the Secretary of State's attention to our debate and I look forward to hearing in detail about the problems. Therefore, perhaps we might leave that matter to one side for the moment to be dealt with under the terms of that debate. I hope that my explanation of the difficulties with the amendment will persuade the noble Baroness to withdraw it.

Baroness Hollis of Heigham

I thank the Minister for his reply. I understand the difficulties about women who are separated but not divorced. I am grateful that the Minister has indicated to the Committee that he has already spoken to his noble friend about the position of people entering residential care. I hope that on Report the Government will find themselves able to bring forward an amendment to cover both the situation affecting occupational pensions, about which we talked earlier, and that facing women on the basic state pension, about whom we are speaking now. This is a real and poignant problem for those who are affected by the provisions. Under the Bill, we could, if we choose, do something about that.

I look forward to the Minister coming forward on Report with something helpful. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 118 [Minor amendments]:

[Amendment No. 184BF not moved.]

Clause 118 agreed to.

Lord Lucas

I beg to move that the House do now resume.

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

House resumed.

House adjourned at twenty-nine minutes before eleven o'clock.