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Lord Goodhart: My Lords, I am sorry to rise again, but is it not the position that this legislation will, in a sense, inevitably be retrospective because you are enabling pensions to be split which were bought at a time when pension sharing was not possible? To that extent it will be retrospective. Compared to that, my suggestion seems to involve a small degree of retrospectivity.

Baroness Hollis of Heigham: My Lords, I think that is a bit of sophistry. Any change changes what currently exists. Therefore, to that extent it is retrospective in the sense that anything that exists was what you entered into. I am not sure that the noble Lord's argument is a valid one.

The noble Lord, Lord Astor, pressed me on the point about rebuilding. I take the point that he makes, that there is a concern that people, particularly men who divorce later on, should be able to rebuild their pensions and that the Government should encourage that. However, I would ask him to remember that most people have huge headroom in their pensions. My understanding is that only 5 to 10 per cent of people in both occupational and personal pensions contribute to the maximum. In other words, 90 per cent plus do not and, therefore, there is headroom.

Secondly, the average age of divorce is in the early 30s and, therefore, there is likely to be adequate time--I am not saying ample time--to rebuild the pension, given the amount of headroom, providing someone's income permits.The noble Baroness, Lady Strange, pressed me on Army spouses and their eligibility for pensions. We are hoping that the civilian wives of servicemen who have held jobs in the United Kingdom, who have perhaps gone to Germany, and who have contributed to a stakeholder pension, will be able to benefit from the five-year rule that allows them not to contribute during those five years, or to contribute if

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they wish during those five years, and to keep their pension going. We think that that should be particularly attractive to service families.

Lord Swinfen: My Lords, will the noble Baroness allow me to intervene?

Baroness Hollis of Heigham: My Lords, I am in your Lordships' hands. I have a huge amount to get through.

Lord Swinfen: My Lords, I wanted to say that some servicemen who are married are in Germany for longer than five years. It is unusual, but it does happen and it is a point that needs to be taken on board.

Baroness Hollis of Heigham: My Lords, I take that point. I was trying to show that here uniquely we have a pension which will allow people to continue to pay over five years, possibly with the help of a partner, even though they are not in work. That might be particularly useful for service families. It does not exist in other forms of pension provision.

My noble friends Lady Castle and Lady Turner commented on the implications of the state second pension and the stakeholder pension replacing SERPS. Both my noble friends made the point, and I entirely agree with them, that the previous administration did a hatchet job on SERPS, both in 1986 when they went from the best 20 years to whole life; and then again in 1995 when we had the equalisation of state pension age for women, the 20 per cent rather than 25 per cent accrual rate and changing the accountancy rules which over time reduced the value of SERPS from £40 billion, first to £20 billion and then to £12 billion. To restore those cuts would produce expenditure of around £30 billion a year in 2050 and we do not now believe that to be the best way forward.

There was no manifesto commitment on SERPS; there was on citizenship pensions, which are now state second pensions. We are proposing, first, a SERPS without the earnings-related section. The state second pension is SERPS without ER. I hope that my noble friends welcome that because, unlike SERPS which gives more to those who earn most, the state second pension will ensure that anybody who earns between the lower earnings limit of £3,500 up to £9,000 will be credited with a pension as though they were earning £9,000. That will be a bigger redistribution of wealth to those, particularly women, particularly carers, including many disabled people, in their old age than anything so far conceived. It will be worth double what SERPS will be for those people on £6,000 to £9,000 a year, for example. That is far more generous than anything previously considered.

Unlike SERPS, the stakeholder pension is not in competition with occupational pensions; it is meant to be in competition with personal pensions, so we hope it will be safe under trustee governance, portable, flexible, inexpensive with the 1 per cent charges, but

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comprehensive in the sense that the self-employed will also be able to come in. We hope it will attract employer's contributions, but we believe it will offer for the first time a reliable, good, funded second pension.

I shall not go into some of the NICs points. If noble Lords will allow me, I will write. I want to go on to two other major areas before closing the debate. The first relates to widows and the last to disability. The noble Earl, Lord Russell, said that we were moving at breakneck speed. The noble Baroness, Lady Anelay, asked whether we were not being unfair to women who had been at home and had not worked and who were expected in their 40s and 50s to find a job. The noble Lord, Lord Rix, made a passionate speech on behalf of widows.

I simply ask whether it is right that a widow who is in no financial need because she has a generous occupational pension, is not unemployed because she is in a well-paid job, has no dependants because her children are grown up, should nonetheless receive a widow's pension until she retires even though she has no financial need and no dependants, whereas a man struggling to bring up young children and who may have to leave work receives no such benefit at all. I cannot believe that we should still perpetuate the myths of a woman's dependency and a man's independence.

Let me give your Lordships one statistic. I have talked about three-quarters of married women being in work. Most widows will be in work when they are widowed and will want to return to work as quickly as they can, obviously. But I remind your Lordships, if we look at the employment figure of widows compared to widowers, 53 per cent of widowers between 45 and retirement are in work; and 54 per cent of widows. We are talking about generations here. The generation of the widow who had stayed at home and never worked--for money, that is--had brought up her children, had supported her husband, never went into the labour market, never earned an entitlement of her own for her own support, belongs to the generation of the 1970s or even of the 1950s. Now as many women are in work as men; as many widows are in work as widowers, and women have the right to be treated with the dignity of their own independence as they acquire those benefits.

The noble Lord, Lord Rix, says that we have not had a satisfactory reply to the ECHR question. May I gently suggest that it is a reply that may not satisfy him but does satisfy me. It may be simply that he disagrees with the reply.

Lord Rix: My Lords, I thank the noble Baroness for allowing me to interrupt. It is merely that no legal argument has been placed in her answers to date. I would appreciate it if it were possible to have a legal opinion as to the question of the human rights in relation to SERPS and the contributory pensions.

Baroness Hollis of Heigham: My Lords, I signed exactly that at the front of Section 19, and that could only be based on the best legal advice I had available to

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me within the department. I know that the noble Lord disagrees with our response but it was given to him on the basis of the legal advice I had. If he has other legal advice, I would be very happy to discuss it with him.

The noble Baroness, Lady Strange, raised the issue of war widows. They are not affected by this Bill. The issues she raised are a matter for the MoD, and they are conducting a review at the moment.

Finally, I turn to disability issues. I am sorry about the time but I have taken quite a lot of interventions and I have done my best to respond to them.

Noble Lords: Oh!

Baroness Hollis of Heigham: My Lords, this is a Second Reading on an important Bill and I am trying to be helpful to the House.

The points made on disability issues were, first, that the contributory principle was set in stone, even if only one contribution or six months'-worth of contributions had been made 20 or 30 years before. Almost like a down-payment, that entitled you to a national insurance benefit for the rest of your life. The second point made was that any calculation of any alternative income was inappropriate.

My Lords, as my noble friend Lady Pitkeathley has said, IB has increased not because of fraud but because it was used by the previous administration for early retirement. It continues to be the case that nearly half of all people going on to incapacity benefit are not currently in work; they are currently unemployed.

I was pressed as to whether none the less the changes that we proposed were not undermining the basic contributory principle, and the noble Baroness, Lady Fookes, said that if any private insurance company did this they would be in breach of contract. I do not know about her insurance company but over the years my insurance company has changed the rules about subsidence, about contact lenses, about my sons' bicycles when they lost them and, what is more, if in any one year I had failed to make the requisite payment for that insurance policy it would have been invalid and I would not have continued to have protection. It is perhaps worth recalling that, if we are speaking of a notion of insurance and a pay-as-you-go scheme, there exists a mutual responsibility.

We are not saying that anyone who fails to meet the contributory conditions should not have the appropriate benefits; what we are saying is that incapacity benefit is a benefit linked to recent work. If you have been unemployed for a long period of time, the appropriate benefit is likely to be income support with a disability premium. I remind your Lordships that income support with a disability premium is considerably more generous than incapacity benefit itself. No one is necessarily a loser by being on a different benefit but on the appropriate benefit.

The second point made was that it was unreasonable not to take into account pensions starting at £50 with a taper. My right honourable friend the Secretary of State

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has made it very clear that we are perfectly willing to consider discussing figures; that these were not set in stone and so on. However, if we take the example of a family with a disabled man who is on IB and who has a dependent wife and children, I should remind your Lordships that he would have to earn over £16,000--in other words, as my noble friend Lord Ashley said, above the average earnings of £15,000--before he lost all entitlement to that benefit. On top of that, he may well receive DLA, as well as having savings, given the level of occupational pension that he may have acquired during his work, which will remain unaffected.

My noble friend Lady Castle said that such a move was a disincentive to save. I disagree with her. I believe that people save for a pension not, I suggest, because they fear the risk of disability, but because they expect the certainty of many years of old age. That is why people save. I am sure that that will continue to be so and that people will continue to save to prepare for their old age.

I was asked about carers. Their position will indeed be protected as regards IB. I was asked by the noble Earl, Lord Russell, about the all-work test and its adequacy. I agree with him that scores do not reflect incapacity. Someone who is exempt and is registered blind may have more work capacity than someone with a relatively moderate mental health problem which none the less makes it very difficult for that person to hold down a job.

I agree with my noble friend Lord Morris. I am happy to reaffirm that within disability benefits we are not talking about fraud and we are not talking about abuse; but we are sometimes talking about people not being on the right levels of benefit.

There is one further point on SDA that I should like to deal with before I conclude the debate. The noble Lord, Lord Campbell of Croy, said that this affected women. That is true. However, as with our assumptions about widow's benefit, that comes from the view that women do not work and that women derive their protection only through their husbands or through an entitlement which has nothing to do with what they have earned. If a young girl, a woman or anyone becomes disabled before they are able to enter the world of work and they would normally have gone on to SDA, they will now go on to incapacity benefit, which is considerably more generous; indeed, some £25 to £30 more generous. If they are in work when they become disabled, they will be entitled to incapacity benefit. If they are of working age but not in work and become disabled while unemployed, they will be entitled to income support plus disability premium, which is £7 or £8 more generous than incapacity benefit.

I ask your Lordships: is it reasonable that, say, a woman--and that was the example given to us by the noble Lord, Lord Campbell--who has not worked, who has family income that floats her off income-related benefits, who has not contributed and whose disability

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costs are not sufficient to generate DLA, should automatically receive SDA irrespective of her income? I do not think that that is right.

At the very beginning of today's debate I was asked what principles lay behind the Bill. We outlined those principles in both our Green Paper and our White Paper. I tried to suggest earlier that what we have sought to do in the Bill is address the ethics of Beveridge to today's society of changing work and changing families. I was asked by the right reverend Prelate the Bishop of Bradford about those ethics, forged as they were in the years during the war; born perhaps out of a concept of Commonwealth, recognising the fact that people wanted the opportunities and self-esteem that come from being full members of a society, with a determination never to revisit the grim landscape of the 1930s.

Beveridge caught a public mood that my noble friend Lord Longford will recall. He caught a mood in which society was determined that its people would not be defeated by the giants which stalked the land: the giants of want, ignorance, idleness, squalor and disease. Beveridge sought to slay those giants: so do we. With idleness, or unemployment, we are seeking to bring people back into work through the New Deal and through the working families' tax credit. We are seeking to overcome ignorance, the second of Beveridge's giants, by investing in education at primary level by way of Sure Start and by widening the opportunities for higher education. We have a £40 billion investment in education, as we have in health, to tackle the third of Beveridge's giants, the giant of disease. As regards squalor, we are encouraging local authorities through our local authority legislation to develop leadership and entrepreneurship and to rebuild their communities.

The fifth and last of Beveridge's giants is the giant of want and of poverty for those who cannot work. I was asked what are the principles of Beveridge. The ethics of Beveridge are those that we are applying in this Bill. Those are the principles that lie behind our determination to reform the welfare state. However, Beveridge's means of tackling those giants, which was based on a contributory system, has broken down given family changes, labour changes, the changing position of women and the demography of our society. If we want to be true to the ethics of Beveridge, we must adapt and reshape the means by which we deliver the benefits, the security and the opportunities that Beveridge would want to see. That is what we propose to do in this Bill. I hope that your Lordships will accept it.

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