|Previous Section||Back to Table of Contents||Lords Hansard Home Page|
Lord Goodhart: I am grateful to the Minister for what is at least a moderately encouraging reply. I accept that there may be technical problems and that the amendment which I drafted is not necessarily the best way forward. But there is a serious problem with entry and exit years. Let us take the obvious case of someone in receipt of invalid care allowance. Let us imagine that the person who is being cared for dies during, let us say, the month of February, so there is not a complete year; but the period between the date of death and 5th April is insufficient to enable the carer to get a job and build up an adequate earnings factor in that job.
It seems to me that there needs to be some solution to that problem. I am greatly encouraged by the fact that the Minister has accepted that there is a problem. Therefore, I beg leave to withdraw the amendment.
All existing earners who are not contracted out have a SERPS entitlement. As pointed out by the noble Baroness, the S2P will be more generous than SERPS to lower earners. The amendment will enable lower earners to claim a full S2P in a shorter time by substituting a year of S2P for a year of SERPS. The amount of the S2P is calculated under Schedule 4 to the Bill which inserts a new Schedule 4A into the 1992 Act in its usual confusing way, which makes it almost impossible for anyone to understand what is going on in the Bill. That starts on page 102.
The idea behind the amendment is that if, in any year after the S2P has been introduced (let us call that "Year X") the amount of the S2P earned in that year is larger than the amount of SERPS earned in any given year before the S2P is introduced (let us call that earlier year, "Year A") the contributor can give up his right to SERPS in respect of Year A and claim the S2P twice over in respect of Year X. The following year, Year Y, the contributor can do it again in respect of another SERPS year. The process can continue until the contributor reaches pensionable age or has used up and exchanged all the SERPS years which are worth exchanging. In some cases that means that the contributor could qualify for the full S2P in as little as 20 years.
I recognise fully that that is a complex idea. It emerges from the fertile brain of Professor Webb. It will need detailed information to be given to contributors. I am not sure that I have the formula quite right. Indeed, I believe that if one doubles the amount in any year under paragraph 1(1)(a), one also has to increase the number of relevant years by one, which I failed to do. If the Government can think of a simpler way to speed up access to S2P, I would, indeed, be glad to hear it.
However, I believe that much trouble arises from treating pay-as-you-go schemes as if they were funded. Under a funded scheme, it is obvious that you cannot pay a full benefit until the fund has fully built up. However, if you are making a pay-as-you-go scheme more generous, you can apply more generous treatment to past as well as future years.
The S2P will increase public spending. I understand why the Government do not want to bring in the full increase next year or in five years' time. The amendment does not do that. However, there is no need to delay the phasing in of the full increases over a period as long as 45 years. I believe that the Government should accept, if not this particular draft, at least the principle behind the amendment or come up with a better scheme for phasing in the full S2P more quickly than they propose now. Otherwise, the S2P will prove to be an extreme disappointment to any but the youngest of those presently in the employment market. I beg to move.
However, perhaps I may ask the Minister whether it will be enough to give a decent income on retirement. As I pointed out at Second Reading, the S2P is expected to provide a maximum of around £50 per week in relation to today's earnings. The often-quoted example provided by the Government of a woman reaching 65 in the year 2051 who had spent her life earning under £9,500 or caring for young children was that she could expect to receive £84 per week income from the basic pension and her S2P together in relation to today's earnings, which is about £6 more than the level of today's income support. That is better than the current system. However, is it really adequate or something on which we should encourage such people to rely?
Currently, about one in five older people receive income support, the MIG. I was disturbed to learn that without any changes to the state pensions, one in three older people will be on means-tested support by 2050. As an aside, some older people, no doubt, will become eligible for MIG because they have lost half their husband's SERPS entitlement on his death; an issue we will discuss presently.
Part of the reason for the rise is the fact that the Government promised to increase the MIG by earnings which will make more and more older people eligible for it every year. However, even after the introduction of the S2P, one in four older people are forecast to be on means-tested benefits by 2050. Having checked with the DSS, I discovered that it is only when one assumes that people save an additional 5 per cent per year that we end up with the same proportion of older people on means-tested benefits in the year 2050 as now, one in five. Given that the savings ratio has fallen so much, is that realistic?
I find myself attracted to amendments such as these which seek to improve and enhance the S2P to ensure that it provides a decent income in retirement for tomorrow's pensioners, especially the low paid, the carers and those who are disabled.
We await with interest the reply from the Minister. However, our concern is very much what has been said a moment or two ago. The system being introduced will not produce benefits for another 25 years or so. In particular, it is not a funded scheme. What we have here is the perpetuation of a situation whereby one generation pays for the retirement benefits of the previous generation. In effect, we should have a funded
Baroness Hollis of Heigham: Perhaps I may ask the noble Lord for elucidation on that point. He is the first person this evening to make that point. Is he arguing that people with an income of less than £9,500 should be paying into a funded scheme? If so, how could they afford to do so? If not, where would the money come from? If it were to come from the taxpayers, would it not be the case that the taxpayers on low earnings would be paying twice over, both for future generations and to go into a funded scheme of their own? I do not see how his sums even begin to add up.
Lord Higgins: I shall be taken a long way from the amendment in my response, but perhaps I may put briefly what seem to me to be the substantive issues here. The noble Baroness is saying in effect that certain people will be deemed to have made contributions, but that still remains simply a paper promise. In no sense is it backed up by real money. If one is to avoid a situation of continuing generational equity, we will find that we shall continue to deliver only paper promises.
For the reasons which I put to the Committee on an earlier amendment, the more that we can move towards a funded scheme--if the Government really are saying that they will deem these to be contributions--where the contributions are real rather than only notional contributions, the better. There is a danger that, although at this point the Government say that they will "deem" contributions to have been made, when it comes to the benefits covered by those "deemed" contributions to be made, we may well find that at that point there is no additional cost to the Government because the minimum income guarantee will have overtaken the second state pension.
Back to Table of Contents
Lords Hansard Home Page