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Baroness Castle of Blackburn: Would my noble friend--

Baroness Hollis of Heigham: My Lords, it is the Report stage; it is not the Committee stage. I shall of course give way to my noble friend, but I suggest that we then return to Report mode.

Baroness Castle of Blackburn: Thank you. I wanted to ask my noble friend a question. If the sin of pay-as-you-go schemes is that those who enjoy them are not those who paid for them, is that not the essence of a means-tested benefit such as minimum income guarantee?

Baroness Hollis of Heigham: My Lords, I do not quite understand the purport of my noble friend's question.

Baroness Castle of Blackburn: Perhaps I may explain it. A person who pays for his pension as of right--the basic state pension--is told that he cannot be given anything, but if he falls within the minimum income guarantee, whether or not he has been among the main savers for his old age, the amount will be made up to £78. The individual will receive that amount whether or not he has paid for it.

9.45 p.m.

Baroness Hollis of Heigham: My Lords, as my noble friend knows very well, the policy behind the minimum income guarantee seeks to address the poverty of those pensioners--mainly older women, including widows--who, by virtue of their domestic and caring responsibilities, have not been able to enter into either a SERPS or occupational pension while in the labour market. They have not had the advantage, which future generations of women in that situation will

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enjoy, of entitlement to the state second pension to float most of them off MIG in future. I hope that my noble friend accepts that description.

Pensions by their very nature are a long-term issue. We have introduced MIG to give extra help to those of today's pensioners who have been unable to save. The need for this extra help will be progressively reduced as the benefits under S2P start to accrue. Many of the lower paid will see a boost to their pensions within 20 years or so. For example, someone who retires in 2025 with earnings of just £6,500 for a full working life will be lifted above MIG by receiving £18 a week more than he would have received under SERPS. The position of couples under S2P is even better, because MIG for a couple is not twice what it is for a single person.

As I said when we debated this matter previously, without our pension reforms one in three pensioner householders would have to rely on MIG by 2050. Our reforms will reduce that proportion to one in five. We shall lift over 2 million pensioners off MIG as a result of our changes. That is our response to an inherited situation whereby a wide range of people--low earners, carers and disabled people--have no hope of a decent income in retirement. Stakeholder pensions and S2P will help people to build up good second pensions in their own right. The MIG provides help to today's pensioners, and will do the same for those currently approaching pensionable age who do not have time on their side to build up an entitlement to S2P. We believe that that balance is right.

Under Amendment No. 69 some low earners would have their SERPS entitlement boosted. I understand the thinking behind the amendment. It recognises that low earners are a group who have benefited least from SERPS and therefore seek to do a swap, as it were, between entitlements. But I do not believe that the way to address the problem is to tinker with entitlement which has already accrued in a way which is partial and unfair. For example, the amendment would not benefit those other groups which S2P is designed to help--carers and long-term disabled people--who have not accrued entitlement under SERPS. It would be unfair to existing pensioners who would be unable to benefit. People with the same earnings in the same year would have the SERPS entitlement calculated in entirely different ways. There would be little gain in the short term because those reaching pensionable age soon after the introduction of S2P would have only a few SERPS years enhanced. Even with that boost, many low earners under SERPS would not have a pension sufficient to keep them above MIG.

The fact is that SERPS is such a poor deal for those on low earnings--which is why we are reforming it--that even this boost would give limited advantage to only a few. That is why in S2P not only do we treat low earners as if they had earnings of £9,500--even if their earnings were £3,500, £6,000 or £7,000 they would get a pension on the basis of earnings of £9,500--but, unlike the noble Lord's amendment, we double the accrual rate on those earnings from 20 per cent in SERPS to 40 per cent in S2P. It is the combined effect of those two measures--the assumption of earnings of £9,500 and the doubling of the accrual rate--which

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gives low earners in S2P a pension which is sufficient both to take them above MIG when they reach pensionable age and to keep them there for a significant number of years.

The noble Lord's amendment does not increase SERPS entitlement to the level of S2P because it delivers the low earners boost only up to the level of £9,500 and does not tackle the issue of the double accrual rate. Further, his amendment would make the calculation of additional pension entitlement very much more complicated. The noble Lord will say that it is not beyond the wit of man to devise a way round it. None the less, any form of retrospection for one group alone--which is what the amendment would do--is not fair to others, and we believe that the operational complexities are mind-boggling. That is why we are directing resources instead through MIG where there is immediate need and introducing S2P to address longer-term need. I hope noble Lords will agree with me in that approach and that as a result the noble Lord, Lord Goodhart, will feel able to withdraw the amendment.

Earl Russell: My Lords, before the Minister sits down, perhaps I may, for the purposes of elucidation and clarification, draw the noble Baroness's attention to the wording in the Companion to the Standing Orders about interventions.

There is no separate rule for interventions on Report. The rule that lengthy or frequent intervention is undesirable is common to all stages of our proceedings. The only thing restricted on Report is speaking after the Minister has sat down, which is to be confined to brief questions for purposes of elucidation. I hope that that may be of some assistance to the Minister and to the House.

Baroness Hollis of Heigham: My Lords, I take that point. None the less it is at Committee stage that we explore, discuss and debate in the sense of to-ing and fro-ing. Under the conventions of the House that is not what we do on Report.

While I am happy to try to answer any point that arises, to engage in a lengthy debate in the course of a speech is, from my experience of the House, not Report but Committee procedure. Although taking interjections and interventions in the usual spirit of the House, I do not think that that is the same as introducing a format of debate into the process of Report stage. Such to-ing and fro-ing debate is Committee style, as I am sure the noble Earl, Lord Russell, knows and practises.

Lord Goodhart: My Lords, I was pleased that I had managed to draft the amendment in a style comprehensible to the experts on the subject.

We have had an interesting debate. I recognise that the proposal would add a fair amount of complexity to what is already a very complex piece of legislation. Taking that into account, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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Lord Goodhart moved Amendment No. 70:

    After Clause 32, insert the following new clause--


. For section 79 of the Social Security Contributions and Benefits Act 1992 there shall be substituted--
"Age addition.
79.--(1) A person who is above the age of 75 and who is entitled to a retirement pension of any category shall be entitled to an increase of the pension to be known as the "age addition".
(2) A person who is in receipt of a pension or allowance payable by the Secretary of State by virtue of any enactment or instrument (whether passed or made before or after this Act is passed), and who--
(a) is above the age of 75, and
(b) fulfils such other conditions as may be prescribed,
shall be entitled to an increase of the pension or allowance, also to be known as the "age addition".
(3) A person who is above the age of 80 and is in receipt of age addition shall be entitled to an increase in the age addition, to be known as the "further age addition".
(4) Age addition and further age addition shall be payable for the life of the person entitled, at weekly rates to be determined by the Secretary of State in regulations."").

The noble Lord said: My Lords, this amendment is what I might describe as our flagship amendment. It is less technical and covers a broader field than Amendments Nos. 66, 67 and 69. Its purpose is to increase the basic state pension for those over 75, with a further increase for those over 80.

The amounts of the further age addition are not specified in the amendment because they need to be varied year by year. My party will announce our own proposals regarding those amounts when our policy paper on ageing--it includes our policy on pensions--is published later this summer.

We believe that these increases should be targeted on elderly pensioners. The elderly have more needs. They need more heating. They need more warmer clothes. They may have to buy more expensive food in local shops because they are unable to travel to supermarkets and return with a heavy load of shopping.

Many present pensioners over the age of 75 do not have occupational pensions as good as those of younger pensioners. Moreover, occupational pensions are always likely to mean that younger pensioners will be better off than older pensioners, particularly in cases where the pensions are based on final salaries and those salaries have increased as a result of the general increase in earnings.

We recognise that there are demographic reasons which make it excessively expensive to go back to restoring the earnings link for all state pensions. But an increase in pensions for those aged 75, and 80 or more, would be much cheaper and would benefit directly those who suffered most from the absence of the earnings link.

The noble Baroness has said that the best way of helping the poorest pensioners is through the minimum income guarantee. She said in Committee, and will no doubt say again, that the income

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differences within age cohorts are much greater than the differences between them. That is obviously true, and I have never sought to deny it. That argument strongly favours a minimum income guarantee. But its logical conclusion is that the state pension should be abolished as a universal benefit for all contributors and the money should be diverted into a still higher MIG.

The real question is: what is the right balance between flat-rate universal pension benefits and income-related pension benefits? We believe that the Government have gone too far--or certainly, if matters continue, will soon have gone too far--in the direction of income-related pensions.

It is a fact that workers have been led to believe, and many no doubt still believe, that the national insurance contributions they pay will be used to pay for their own pensions. That, of course, is not true. Current workers are paying for their parents' pensions and, in due course, it is their children who will pay for their pensions. But whether or not that is the case, they believe--I think rightly--that contributions that they have paid give them a right to be treated fairly: that there is the inter-generational obligation of which the noble Baroness, Lady Turner of Camden, spoke in the previous debate.

If pensioners who are not entitled to MIG see the MIG climbing more and more above the basic pension that they themselves are receiving, they will feel cheated out of what they have earned from their own contributions, and will rebel. No government will get support for MIG if pensioners just above the MIG level feel that they are being treated unfairly. That is what the Government need to realise.

With hindsight, it might have been better to have a system in which pensions were paid for out of taxes and the National Health Service was paid for out of national insurance contributions. Indeed, it probably would have been better. But of course, it is far too late to think of that; it would be impossible to reach that position now.

I believe that our proposal for a general increase for older pensioners will be seen as a fair alternative to full index-linking. But if nothing is done, pensioner anger, shown in the reaction to last year's 75p increase will grow, and grow further.

There is another factor. The state second pension will be earnings-linked up to state pension age, but RPI-linked thereafter for any particular pensioner. The state second pension will be flat-rate--partially so at stage 1 and wholly so at stage 2, when it will be based for everyone on a notional income of £9,500 or whatever is the uprated equivalent. It is an inevitable consequence, assuming that earnings continue to rise faster than prices, that S2P will always be smaller for older pensioners than for younger ones, unlike the basic pension, which is the same for everyone and indeed has been increased by the immensely generous sum of 25p a week for those over 80. The effect of that will be that it will also force many pensioners into reliance on the minimum income guarantee late in their life, after they have been in receipt of pensions for

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perhaps 10 or 15 years. I believe that the fact that older pensioners will receive less than younger ones when both are on a flat-rate pension, and the fact that many pensioners, as they reach the age of 75 or 80, will find themselves having to rely on MIG, will make S2P completely unacceptable.

The noble Baroness may ask, therefore, why we do not link the age addition to S2P rather than the basic pension. That would certainly be cheaper because it would exclude higher earners who opt out of S2P but who are still entitled to the basic pension. That is, indeed, a fair point. If the noble Baroness were to offer to add age additions to S2P, I should promise on the spot to accept that as a fair compromise. However, I doubt that the noble Baroness will do so.

We believe that Amendment No. 70 proposes the minimum amount which is essential if public support for the present pension system is to be maintained. I beg to move.

10 p.m.

Baroness Hollis of Heigham: My Lords, the core of this amendment, a version of which was moved in Committee, is based on a reading of pensioner poverty which I do not believe is accurate. It assumes that the basic determinant of pensioner poverty is the age of the pensioner. Therefore, the response of the Benches opposite is to increase the age-related additions.

It is certainly true that pensioner incomes tend to decline with age. However, the difference between the incomes of older and younger pensioners, which is what the amendment addresses, is, as the noble Lord acknowledged, much, much less than the difference between the incomes of the poorest and best-off pensioners within each age bracket.

Perhaps I may summarise the issue. On average, age reduces the income for a couple, whether they are aged below or above 75, by approximately £20 a week. A couple over the age of 75 will have on average an income of approximately £20 less than a couple aged under 75. The amendment of the noble Lord, Lord Goodhart, would seek, perfectly properly, to address that problem.

However, by no comparison is that discrepancy in the same league as the inequality within each group, age for age. Therefore, the difference between the poorest fifth and the richest fifth, whether they are aged below or above 75, is approximately £250 or more, not £20. That is what MIG addresses and what the noble Lord's amendment leaves unaddressed. He addresses the minor problem. However, because it is a minor problem, the amendment would pass most of the money to those for whom age-related poverty is not an issue. It leaves unhelped those for whom poverty is not age related. He addresses the tiny part of the problem, which is poverty associated with age, and neglects poverty where it occurs among younger pensioners. We address real poverty at whatever age it occurs because all MIG money is spent on the poorest.

My second point is that the feasible levels of age addition would do little to combat poverty, even among older pensioners. Were we to accept the noble

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Lord's amendment, an age increase of £5 for 75 to 79 year-olds would lift 50,000 pensioners in that age group off MIG, but 200,000 would remain on it. An age-related addition of £10 at 80, which is higher than the £7 proposed by the noble Lord, would lift 100,000 pensioners over the age of 80 off MIG but would leave 400,000 on it. In other words, age-related additions would still leave 80 per cent of pensioners who currently receive MIG still needing MIG. That is not targeting, as the noble Lord, Lord Goodhart, suggested; it is not even, in the words of the noble Earl, Lord Russell, "imprecise targeting"; it misses the target almost completely.

The Liberal Democrats would fund their proposals by scrapping the state second pension, as set out in a paper by Mr Steve Webb. That would be equivalent to abolishing SERPS. It would mean withdrawing access to a state-funded second pension from those who do not have access to good occupational schemes. It would also mean ending the national insurance rebates that underpin savings in occupational and other private funded pensions. The foundation of saving for retirement would be seriously undermined and the long-term result would be more poverty rather than less.

I hope that your Lordships will accept that the amendment would not work and would not do what the noble Lord thinks that it would do. It would merely give some money to older pensioners who need it, a lot of money to older pensioners who do not need it and nothing to poorer younger pensioners.

The amendment is virtually irrelevant to pensioner poverty and the scale of the issues that we have to address through the minimum income guarantee and the House should reject it.

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