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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.

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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.

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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—
(a) is not residing with his spouse and has been residing apart from his spouse for two years previously, or
(b) is residing apart from his spouse because the spouse is resident in residential accommodation (other than as a temporary resident) and
(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.

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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

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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.

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