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Baroness Lockwood: I support my noble friend's two amendments. I agree, for all the reasons given by my noble friends and by the noble Baroness, Lady Seear, that pensions should be based on the best 20 years rather than the last three years. There is no doubting the fact that, for the majority of women, that would provide a much better pension.

I also support the amendment to the effect that the pension age would be 63 for both men and women. Yesterday, the Minister argued against lowering the pension age for men to 60, despite the fact that no such amendment was actually moved. I wonder whether we can persuade the Minister today to agree to a common pension age of 63, especially when the effect—as stated by my noble friend and as indicated in the Government's White Paper—would be cost neutral. Moreover, I believe that there is also a possible saving of £0.5 billion by the year 2035. So it would be cost neutral in its early years with a possible saving later.

The Minister's arguments yesterday were based on demographic factors, on our ability to pay, and on the increasing number of people being paid pensions and the effect of that on our international competitiveness. The noble Lord said that by shifting the retirement age to 65 we would be adding five more years to the working lives of women. Is the Minister sure that that would happen? For example, the Minister also said that 40 per cent. of occupational pension schemes already

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permit members to retire at the age of 63 or below. Therefore, there is already a move in occupational schemes to facilitate earlier pensions.

It would seem that there is some doubt in the Government's mind. Their proposals include extending "auto credit", now available to men from the ages of 60 to 65, to women. Clearly, they are expecting some women to retire before the age of 65. I am sure they are correct in that assumption. Indeed, we must face up to the reality of the situation that over 50 per cent. of men are now out of the labour force before they reach the state pension age of 65. The same will surely be so for women, or even more so, given their current pattern of retirement. I am certain that the Minister does not anticipate that more women than men will continue in employment up to the age of 65.

Last night, the Minister said that 40 per cent. of men were still working at the age of 64. Therefore, does the noble Lord expect 40 per cent. of women still to be working at the age of 64? Further, does the Minister want older men and women to work into their mid-60s at the expense of younger people?

One major study carried out by Hammond and Morris in 1986 assumed that half the jobs vacated by men retiring early were taken up by the unemployed and half by women coming into employment. The study concluded that if the replacement of older people by the unemployed were extended to 75 per cent. there would be a net saving because the cost of supporting the unemployed was greater than the cost of paying state pensions at an earlier age. Surely it would be more efficient to encourage the unemployed to move into the vacancies created by people retiring at the age of 63. That would also have an effect on the arguments that the support ratio is expected to decline in the next century. The support ratio surely depends not on the number of people of working age but on the number of people who are actually economically active. Therefore, if we could have a greater number of economically active people between the ages of 16, 18 or 20 up to the age of 63, that would be a much more efficient situation for the country.

I suggest that the priority for the Government is not to increase the retirement age for women to 65 but to come to a sensible compromise at 63 and to concentrate their efforts on reducing the number of unemployed by encouraging investment in industry and in training so that more people will be encouraged into employment. Similarly, the support ratio could actually be increased by the number of people who would be of working age. As 63 is cost neutral and the mid-point in all the factors, I hope that the Government will seriously consider the proposal as a useful option.

Baroness Farrington of Ribbleton: I rise to speak in support of the amendments moved by my noble friend Lady Castle, and to speak in particular in support of the second amendment. I do so because I wish to remind the Committee of the point that I raised in the debate yesterday which is that nowadays more women lose more time from their careers due to the responsibility of caring for elderly relatives than they do from caring for children. As regards the retirement age, the final three

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working years of a woman's life are often interrupted and broken, sometimes by taking unpaid leave to care for relatives. Many women do this from the goodness of their hearts; they are willing to do it. Not only do their relatives and families benefit, but it is also a good example to the next generation that we should care for members of the family. It is wicked, surely, if the legislation that we agree to here then penalises them in their own old age for having taken such a decision and such responsibility. I appeal to the Minister to give an indication that at a later stage the Government will listen to the needs of this particular group of women.

3.45 p.m.

Lord Mackay of Ardbrecknish: I have been slightly mystified by this debate because it has ranged a good deal wider than either the two amendments or indeed the clause. Many of the arguments we have heard about the ages of 60, 63 or 65 were arguments that we could properly have addressed last night if some key amendments had not been withdrawn, although we addressed them eventually but not perhaps within the variation that we had on the Marshalled List. I do not intend to revisit last night's debate on the correct age of retirement because this clause, while it is related to that, has nothing to do directly with the Government's sensible decision that the common age of retirement should be 65.

Indeed this clause is not about any real, on-the-ground pension scheme. This clause is about the reference scheme with which other schemes will be compared. While this clause and the reference scheme contain the age of 65, that does not mean that every other scheme must contain that age. It just means that the reference scheme against which they will be judged will be based on 65. I was interested to note that I brought the noble Baroness, Lady Castle, to her feet again. I was going to say that she seemed to haunt me but perhaps I would not go so far as that. When I had a short spell in the transport department one of her pet schemes of yesteryear was being changed by the Government. Now I have moved to pensions—another of her pet schemes of yesteryear—which are being changed by the Government. Therefore I am given a little lecture on what happened all those years ago. I do not know whether I wish to be transferred to the Department of Employment so that I may be given a short lecture on In Place of Strife and what happened in that area when the noble Baroness was in Government, but we shall see.

Today I wish to address in particular the two amendments which the noble Baroness has tabled to this clause. The amendment to Section 12B(3) (a) of Clause 120 seeks to alter the reference scheme under the new contracting out test by lowering the normal pension age in the reference scheme to 63. I am assuming that the noble Baroness intends to propose that pensions be calculated based on the best 20 years earnings revalued, although that is not in the amendment. But either way would be significant.

This amendment, which lowers the normal pension age of the reference scheme to 63, is not acceptable because it would have the effect of raising the level of benefits under the reference scheme. If the reference

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scheme was to require benefits at a rate of 1/80th at the age of 63, the amendment would have the effect of making the reference scheme between 8 and 10 per cent. more valuable to individual scheme members. In addition, such an amendment could increase the costs for schemes where the benefits offered were at the level of the reference scheme.

Many occupational pension schemes have equalised their pension ages at age 65 in the light of the Government's proposals to equalise state pension age. The reference scheme takes account of this and also fits well with the Government's proposals in the Bill on the state pension age. The age set in the reference scheme does not—as I said right at the beginning—require schemes to have a normal pension age of 65. Regulations under Section 12D of Clause 120 will allow schemes to have a normal pension age of between 50 and 75 in line with the current Inland Revenue rules, provided that overall scheme benefits are broadly equivalent to, or better than, those under the reference scheme. The level of the reference scheme has been set to strike a balance between the interests of employers, individuals and Government, and we believe that this has been achieved with a normal pension age of 65.

I turn to the other amendment of the noble Baroness which seeks that pensions be calculated based on the best 20 years earnings revalued. Some groups of workers may have higher earnings early in their working lives. The best 20 years revalued could reflect these differing earnings patterns. However, higher earnings at the start of a working life often reflect overtime and shift payments which may not fully count towards pensionable earnings. Most individuals have higher earnings later in their careers and would wish their pension to be calculated on the basis of their earnings prior to retirement or leaving service. Practically all salary related schemes calculate an average final salary with reference to the years immediately preceding an individual's retirement. This amendment would change the basis of this calculation in the reference scheme and result in considerable administrative complexity for pension schemes so that much of the savings from the introduction of the new contracting out test would be lost.

Calculation of benefits over the best 20 years would require schemes to keep detailed records of individuals' earnings over their working life. This could prove particularly difficult when individuals transfer between schemes and employers and between state and occupational or personal pension provision. The reintroduction of such cumbersome procedures and the recording of earnings on an individualised basis would be similar in many ways to the current GMP arrangements. These have been strongly criticised by employers as too complex.

Our proposals seek to reduce the administrative complexity for employers and schemes while offering a specified level of benefits to members under the reference scheme. This amendment could make the provision of occupational pension schemes unattractive to employers. This amendment is not acceptable to us, and we believe that it would have the effect of lowering the value of pensions under the reference scheme and it would complicate the scheme administration for

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employers. With that explanation of what this is about—it is about a reference scheme and the fact that it does not mean that all schemes have to retire people at 65—I hope that the noble Baroness will see fit to withdraw her amendment.

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