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Baroness Turner of Camden: My Lords, I thank my noble friend for that response. As I anticipated, she has been very sympathetic to the idea behind my amendment. Of course I appreciate that there are considerable problems involved, such as transitional problems, the fact that most people are committed to the notion that you get what you pay for through the contributory system, and a number of other considerable problems. However, I am very grateful for the assurance that the Government are well aware of the difficulties facing many women who have nothing much to look forward to in retirement except poverty, and that pension credit has not been the answer to everything, as we perhaps hoped.
Baroness Hollis of Heigham: My Lords, I am going to ask my noble friend to allow me to intervene. I would not wish anything that I have said to be a criticism of pension credit. I genuinely believe that pension credit has been brilliant at addressing the problem of pensioner poverty that we inherited. However, I have tried to suggest that that does not necessarily mean it should be the long-term solution many years down the line.
Baroness Turner of Camden: My Lords, I am grateful for that intervention.
As my noble friend rightly surmised, it is not my intention to press the amendment to a vote this evening. I beg leave to withdraw the amendment.
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Amendment, by leave, withdrawn.
Lord Skelmersdale moved Amendment No. 292:
"THE STATE SECOND PENSION AND PARENTS
In section 44A(2)(c)(i) of the Social Security Contributions and Benefits Act 1992 (c. 4) (deemed earnings factor), for "six" substitute "twelve"."
The noble Lord said: My Lords, to some of your Lordships, this amendment may seem slightly opaque. We got into this in Grand Committee; the noble Baroness, Lady Hollis, opened her response by saying that the amendment was generous in spirit but also generous in cost. I shall explain in a moment why I disagree with her.
The objective of the amendment is to extend entitlement to the state second pension to people who are not in paid work or who are in low-paid work, and who receive child benefit for at least one child under the age of 12. The current provision is for children under the age of six.
There is a rationale for change. School hours tend to increase when a child goes to secondary school, and it is easier for the caring parent to seek paid employment. The idea also has a reputable history: during the passage of the Child Support, Pensions and Social Security Act 2000, my party favoured amending the Bill in this way. The Labour MP, Dr Lynne Jones, also supported this type of reform. This year, my right honourable and honourable friends in another place sought to amend the Pensions Bill as an alternative way of achieving the same objective.
Many people who would earn a new entitlement to the second state pension under the proposed new clause would have been entitled to additional means-tested benefits in place of the higher second pension anyway. However, under this proposal, they would be paid the money as a contributory benefit instead of as a means-tested benefit, and the problems of low take-up and stigma would correspondingly be much reduced. I should also add that the Equal Opportunities Commission, an organisation much favoured by the noble Baroness, Lady Turner, has indicated that it supports the spirit of the amendment.
The rules are much harsher for the second state pension, as I have indicated. In order to benefit from home responsibilities protection, the children for whom child benefit is received must be under six. If entitlement to home responsibilities protection as it relates to the second pension was extended so that it more closely matched the rules of the basic state pension, this would help millions of people, the vast majority of whom are, by definition, women.
It is interesting to note that when he was pensions Minister, the noble Lord, Lord Rooker, told Parliament:
"The number of additional people who would be brought into State Second Pension by the suggested changes"—
in order to align the rules for HRP to S2P—the noble Lord was using shorthand in exactly the same way as the Minister has been doing all day—
In 2000, the Government estimated that the cost of extending HRP to the second state pension to those with children under 11 would cost £1.3 billion a year in 2050. Since then it could be expected—quite reasonably—that the net cost would have fallen significantly because of the increase in means-tested benefits, the introduction of pension credit and higher employment rates, for example, among lone parents.
However, in Grand Committee the noble Baroness, Lady Hollis, repeated the £1.3 billion figure, although she did not provide us with any information on exactly how the figure had been calculated, or indeed, whether it had been recalculated, whether it was net or gross, and how it related to the statement made by the noble Lord, Lord Rooker, which I have just repeated.
Moreover, although it is not a small sum, £1.3 billion is only 2.6 per cent of estimated expenditure on the second state pension in 50 years' time, when the entire expenditure on that pension is forecast to be £49.8 billion or 1.7 per cent of gross domestic product. In other words, the additional expenditure arising as a result of the amendment represents a measly 0.04 per cent of GDP by the middle of the century. Even that is probably generous because it is not clear how realistic the Government's assumptions for future spending on the state second pension are.
An appendix to the Turner report makes very interesting reading because it notes that current indicative indexation plans for the lower and upper earnings limits, if pursued over the long term, would involve a reduction in the amount of compulsory earnings- related pension provision/saving within the United Kingdom system. It is open to question whether any government would allow that situation to persist, and many current trends are in the opposite direction.
We know that the Government will not make any decisions on what was in the first Turner report until after the second report is published and they have had time to consider it. No doubt your Lordships will want to debate it at some length.
There is a final point that I should make. The reasons given by the noble Baroness, Lady Hollis, for rejecting the amendment in Grand Committee were not only on the ground of cost but also on the ground that the second pension was designed,
"to give those who were in the labour market an alternative pension that was more generous than SERPS".
"It was therefore deliberately linked to being in the labour market".—[Official Report,18/10/04; col. GC166.]
That is very strange. Given how the state second pension extended additional pension entitlement to carers and people with long-term illnesses or disabilities, it is at the very least arguable that the
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benefit is at least as much about helping people who have good reason to be out of employment as it is about helping people in employment. The amendment is therefore most definitely in tune with the spirit of the state second pension as originally formulated.
For all those reasons I believe that we ought to be extending the home responsibilities protection in that area from six years to 12 years as the amendment, slightly opaquely, suggests. I beg to move.
Baroness Hollis of Heigham: My Lords, I am sure that the noble Lord did not intend to, but he marginally misquoted me from Grand Committee, as I was very clear about what I was saying.
I could revisit the argument about costs and the £1.3 billion and say that if I had that sort of money to spend on pensions, that is not where I would necessarily spend it. The figure of £1.3 billion each and every year is not negligible.
I could run other arguments: that between the ages of six and 12, children are usually in a school day that runs from 9 until 3.30 p.m. or thereabouts. To qualify and to be over the lower earnings limit and come up to the S2P, one has to work 16 hours a week, which would be, say, four hours a day for four days. That could be easily levered into a child's school day.
Perhaps I may make my point rather more fully. I can see where the noble Lord is coming from. He is seeking through his amendment to make S2P resemble ever more closely BSP—the basic state pension. I believe that he is profoundly wrong in that. The very debate that we were having earlier about the role of BSP and the extent to which all people, including women, might have access to it, denotes our reading of BSP as a pension to which as many people as possible should be entitled. Over the years since Beveridge, we have stretched it and stretched it, through credits and home responsibility payments, to bring more and more people within its coverage. S2P had a completely different history, and it does no kindness not only to BSP but to S2P to try to replicate the BSP function.
S2P was designed in recognition of the fact that people with earnings of more than £25,000 a year or so were likely to be in an occupational pension. We were running stakeholder schemes for those with incomes between about £12,000 and £13,000 a year and about £25,000. As your Lordships know, in the Pensions Bill we are trying to make employers more likely to contribute towards those schemes than they have done in the past. But we also accepted that very many people on very modest earnings, who worked 16 or 18 hours a week at minimum wage, would take home incomes of £5,000, £6,000 or £7,000 a year. Those people were in the labour market and working but, for them, a funded occupational pension was a dream. It was not possible, although they were working 16, 17 or 18 hours a week and trying to combine that with home life.
With S2P we were trying to produce an alternative occupational pension—and some of your Lordships were present when we developed it. That alternative not only built on SERPS but was more generous than SERPS, because it meant that whether one was
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earning £6,000 or £11,000 a year, one would get the same S2P. But the condition of that was that it was a reward for being in the labour market, and a compensation at that level of earnings for having no access to an occupational pension scheme. It was attached to the labour market. In that sense, the more that BSP moves away from the contributory principle, as it has to some degree with issues such as HRP, the more important it is to protect S2P as a contributory pension to which people have added their contributions over the years through the national insurance principle. Without that, we will have very real difficulty in sustaining a second pension distinct from that of the basic state pension.
With S2P, we agreed that there were some people who could not enter the labour market—disabled people—and some who were getting carer's allowance because the element of caring was so substantial that it was unwaged work, which would not be alleviated because they were dealing with people with a middle or high-rate DLA, whose condition might very well deteriorate over time, although that was not invariably the case.
Therefore, S2P was for those in the labour market and unable to gain access to an occupational pension because of the poverty of their earnings, or for those who could never enter the labour market but who were, particularly as carers, doing the equivalent of a non-waged, full-time job. But we were clear that it was never an optional pension for those free to make choices to enter the labour market, even at the modest level of 16 hours a week.
I firmly believe, with all the work that we have done on the new deal for lone parents and the rest of our strategies, that we are helping women, including lone parents, back into the labour market. There need be no problem for women who wish to enter the labour market to reach the lower earnings level with children between the ages of six and 12 at school—and they do. Hosts of them do. It would be quite wrong to extend this provision to people caring for children up to the age of 12, thus increasingly aligning what is meant to be a contributory labour market occupational pension, and to seek to turn it into a diluted version of basic state pension. That is what this amendment would do, and I think that is profoundly wrong.
I could go on at greater length but I hope that the noble Lord will recognise or accept the force of that argument. If he continues in the way that he is going, we would end up, as I say, breaking the connection between S2P and waged work for a whole swathe of people for whom we should not break that link. If we do that, the whole justification of S2P itself becomes increasingly shaky. I hope that with those comments the noble Lord will feel able to withdraw his amendment.
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