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If people in work were to have the option to pay contributions past pension age, would it be equitable to exclude those who do not work but carry on their caring responsibilities after pension age from accruing further pension entitlement? We would be changing a fundamental part of the Bill. Again, the answer is no, on the basis that the individual concerned could reasonably argue that, were it not for their role as a carer, they would continue in work. That raises a supplementary question, though: up to what age is that a reasonable premise? Would it be 70, 75 or 80? I do not wish to labour the point, but we need to be mindful that, although on the face of it this may seem a pretty straightforward and reasonable proposition, it would in reality require significant re-engineering of quite a few parts of the state pension machinery. For those reasons, the Government do not support it.
Baroness Thomas of Winchester: I thank the Minister for that reply, and others who have spoken in this short debate. It should be pointed out that the amendment is supported by the Equal Opportunities Commission, Help the Aged, Age Concern and many other groups. The suggestion from the noble Lord, Lord Skelmersdale, that research should be done on this issue is a good one. Does the Minister agree that some research by his department would be a good idea, as this measure would stop so many women being condemned to a life of means-testing in retirement?
Lord McKenzie of Luton: Of course the department will keep all these matters under review, but the key purpose of the Bill is to prevent what the noble Baroness has just asserted the position to be. It is particularly to address equity for women and to ensure that they have fewer years through which they can acquire a full basic state pension and all the extra credits that come from being in receipt of child benefit or other caring responsibilities, which we are going to discuss shortly.
Baroness Hollis of Heigham: On Amendment No. 3, my noble friend made a fair point that I need to reflect on about carers and the read-across to those who are not in work. There remains a basic problem, however. He and I have friends in common, not far from this Chamber, who have incomplete records, are working past 60 and would like to pay their way and build up a complete record, but are not allowed to do so. That is the simple issue, and it seems unreasonable if we are trying to encourage people to have extended working lives.
I am afraid that I do not really understand my noble friend’s point about complexity for employers. If someone is working for an employer at 59 and continues at 60 or 61, the employer carries on doing exactly what he is doing and no change will occur.
Lord McKenzie of Luton: That is not necessarily the case; it is only if the individual wishes to continue to contribute. That raises the questions of whether they wish to contribute for every tax year for which they remain in employment and whether they wish to contribute for the complete tax year, which depends on the level of their earnings. There is a series of quite complicated issues and records that employers would have to keep, which they do not have to keep at the moment.
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Baroness Hollis of Heigham: I suspect that in that case, if we are assuming a retirement age of 60, a deficiency notice would be sent out by NIRS2—assuming that the computer system was working properly—to a person of 59, telling them what their shortfall was. On that basis, the employee would be able to make an informed decision about whether they wished, needed to or would continue to pay NICs. I can see no practical problems associated with it if one has the wish to do so. Deficiency notices are sent out now; such a notice would be the basis of employees deciding whether to continue to pay NICs. If they felt they should do so, they could; if they felt it was not necessary, they need not. Either way, the employer is unaffected.
As far as I understand it, there is no administrative roadblock to having such a provision. I accept that there is an issue about read-across to carers who are not in the labour market so do not have an employer matching contributions. But for the person in the labour market, whom the amendment seeks to address, I see no such problem.
As for the phrase “while entitled” in Amendment No. 3, it was chosen to suggest that there was an entitlement, as opposed to an act of drawing the basic state pension. That is because the age at which women draw the basic state pension will change over time. I did not try to pin that down in the amendment. It is simply a statement of eligibility; while a woman—or a man, come to that—might be eligible for a basic state pension, they could choose not to draw it because they are in work. They would therefore voluntarily pay a full, proper, costed stamp—which, for the rest of us, is assumed to pay our way for S2P—and, as a result, build up a decent enough record which, according to the Government’s regulatory impact assessment and the subsequent figures produced by the Minister for Pensions, would float them off means-tested benefits in the future. If we do not do things like this, some people—maybe not very many—will need means-tested benefits further down the line because they were denied a responsibility they were willing to shoulder of building up a pension in their own right.
Obviously I shall withdraw the amendment at this stage; I shall reflect on the read-across to carers, but I do not really believe that my noble friend has challenged the core assumption that we are talking about somebody in work seeking to continue to build on their pension while not drawing their current pension. That case remains valid, but for the moment, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Hollis of Heigham moved Amendment No. 4:
“(5) The contributor may make voluntary contributions at any time before drawing a Category A or Category B retirement pension and for any period of their working life up to a total of 9 years.”
The noble Baroness said: Amendment No. 4 would allow someone to acquire nine additional years under class 3 contributions. We have a contributory system; I do not want to make a Second Reading speech about keeping people out, but, by reducing to 30 the contributory years for BSP, extending carers’ credit and lengthening the working life so that those contributions are more easily acquired for those over 65, the Bill will help to extend the reach and coverage of contributions. I know that everyone in this House is delighted about that.
However, the Bill leaves us with two broad problems, both of which have been touched on. The first is the cliff edge. A woman who retires in February 2010 needs 39 years’ contributions. If she retires in May 2010, she needs 30. A month, a week—even a day—will cost the unlucky lady nine/thirty-ninths’ worth of her basic state pension for the rest of her life. It is even possible, to use a slightly exaggerated example, to have twins born either side of that hour by 10 minutes; one would get the basic state pension after 30 years, while it would take 39 years for the other to do so.
I accept the arguments my noble friend made earlier about transitional arrangements being awkward and complex. That is a valid administrative point. I also accept the point he made to the noble Lord, Lord Skelmersdale, that phasing in the changes means delay. Therefore, the Government’s willingness to go for 30 years at 2010 seems decent and humane. I also understand why the Government felt unable to make such changes retrospective—the complexity of record-keeping is considerable. But such an abrupt cliff edge will none the less be perceived as deeply unfair, even more than the reduced married women’s stamp which has for many years been regarded as unfair to women. That problem is there, and the ability to purchase nine years would allow someone, if they chose, to avoid that cliff edge. They could make good the shortfall between 30 and 39 by purchasing another nine years. The amendment would address the cliff-edge problem responsibly, but I accept the Minister’s arguments about the more technical difficulties of approaching it in another way.
Admirable though the Bill is in its inclusiveness, excluded groups will remain, even under the more generous provision. As the Government admit on their most optimistic figures, between 5 and 10 per cent of people will be without a full BSP some 20 years down the line. Five to 10 per cent of 11 million people is really quite a lot.
Let us think of today’s amendments. The previous amendment would have allowed people who have passed retirement age but who are still in work to continue to pay national insurance contributions. The amendment to which I shall speak subsequently would bring grandparents who are effectively full-time carers into the system. Amendment No. 31, to which the noble Lord, Lord Oakeshott, and the noble Baroness, Lady Thomas, will speak, would allow people to run multiple jobs below the lower earnings limit. All those amendments are necessary because the contributory principle cannot cover everyone. If it did, it would be a citizen’s pension.
What do we do when we have pockets of excluded groups? My preference is built into Amendment No. 33, which would scrap the outdated and unfair principle of a contributory system and, instead, build an inclusive, residency-based pension. We will argue that in due course. A second option is to go down the track of seeking individually tailored changes for a series of excluded groups—a particular change for those with several jobs below the LEL, a particular change perhaps for grandparents and a particular change for those seeking to work past retirement age. However, I accept that that brings more tweaking, more complexity and more difficulty to the system.
However, there is a third way, which is what this amendment proposes; that is, a flexible, generic response, allowing people—they will mainly be women—to make good the shortfall by buying up to nine additional years. As I have said, nine years will address the cliff-edge effect fairly; it will make good in full or in part, depending on how many years the person concerned has already accrued, those years during which they made a socially valid contribution to society but which are not tracked for NI purposes. My noble friend the Minister offered two responses to the cliff-edge problem; I am offering a third way.
Such an approach has five advantages. I have mentioned two of them: it addresses the cliff-edge problem and it would help to include those groups—10,000 people here, 20,000 people there—who will remain excluded even under the far greater generosity of this system. In addition, there are three other advantages in being able to buy nine extra years. The first is that it is eminently workable. The principle of buying added years is already well established. For example, if a student wishes to buy three added years within six years of their missing a year, they can do it now. If one is temporarily working abroad, one can buy missing years. I do not think that I am divulging any secrets when I say that both my noble friend and I have had family circumstances in which we have considered this path. In other words, the path of buying additional years within six years is already available for those who know about it—the well-educated, those who think that they can afford it and the relatively well-heeled.
In 2004, which is the latest year for which statistics seem to be available, some 250,000 people bought additional years, of whom 144,000 were women and 107,000 were men, mostly in their fifties, paying some £161 million to the Exchequer for the rights. The practice of departing from the within-six-years rule, which is what the amendment seeks by allowing one to buy nine years for any missing years and not merely those six years, has already been established by government. Due to the failure of the NIRS computer to send out deficiency notices telling people of their shortfalls between 1997 and 2001, the Government have allowed people to make good that deficiency right up to 2009-10, which is another 12 years. When it suits government, we do not have to be constrained by within-six-years; we can have 12 years, because the computer has fumbled. That was a decent, sensible and proper response, and it shows that principle is eminently workable. We already allow people to purchase extra years and nudge them with deficiency notices. If appropriate, we extend those extra six years to 12.
This amendment would add the flexibility that those extra nine years could be purchased at any time and not within the usual six-to-twelve year framework. Many women with jigsaw lives, entering or leaving full-time, part-time or temporary work, caring for children, partners or elderly family members, are unable to predict from one year to the next what the picture on the jigsaw box will eventually look like and whether any pieces will be missing. They may have missing years scattered across a full lifetime. At the moment, only if those missing years were within the last six years can they make that good. Some will know, but many will not know, whether they have the full complement of the NI years—30—until the month when they come to retire, and whether they have a full record and what, if any, years as a result they may want to buy.
The amendment would give us additional flexibility but it would also mean that if people—mainly women—know that they can make good such a deficiency and buy a full basic state pension, it takes some of the risk out of saving. A second small pension becomes worth having because, with a full BSP, they will not face a pound-for-pound, 100 per cent deduction with regard to the pension credit guarantee, for example. It will help to establish a secure platform for their savings because there will be a predictable floor in the BSP, therefore encouraging more women to save and, I hope, abating some of their poverty in older age.
What are the costs? We are not talking about a freebie here but a gentle extension of current rules on buying additional years. To buy a class 3 voluntary contribution, which buys only BSP—it does not buy S2P or IP or anything like that—costs on average about £350 or £3,000 to buy nine years’ worth. If purchased at 60 with average life expectancy, it is obviously extremely good value. If, as is quite possible, the woman has insufficient savings—and one might then look to Saga or Help the Aged in this regard—a commercial loan could be arranged. At 7 per cent paid over five years, it would cost her £14 per week to pay off the loan, to receive a pension even then worth some £20 a week and, five years on, she would receive the full pension of an additional £20 a week, which those extra nine years would have bought. Even if she had to go down the route of taking out a commercial loan, it would still be worth it each and every year—particularly after five years of the loan being repaid. After 2010 a purchase of up to nine years on the 30 would produce even more attractive returns.
How many people might we help? Of women reaching state retirement age in 2004, only 10 per cent had 39 or more years of national insurance. A further 25 per cent had a shortfall of up to nine years—so this amendment would fully cover them—and a further 20 per cent had 25 to 30 years’ worth of contributions. Again, that is a valuable if not complete addition to a full BSP. Below that, if they were married, it would probably not sufficiently improve their position over the dependent wife’s pension.
On the cost to the Treasury, the figures are imprecise. I got some figures this morning from the department. There will possibly be a modest profit in the early years to the department when contributions are being collected and a modest cost in later years when payments are being made, dependent on life expectancy. Given that already we sell 250,000 people years now, mostly to the better educated or the better off, I very much hope that poorer women with untidier lives and at greater risk should have a similar protection. If money is the argument against making the amendment, that could be rectified almost certainly by a modest increase in the cost of class 3 contributions, so it is more financially viable—and I shall try to do the sums. The principle is that if the Government and the House if necessary supported an amendment such as this, it would overcome the problem of the cliff edge and the problem that we identify today in a series of ad hoc amendments about excluded groups. If we are to build on a precedent that we already have and extend it to those most in need, poorer women with inadequate records need a sure base if they continue to save.
I hope that my noble friend will feel sympathetic to the amendment, which fits the spirit of the Government’s White Paper and seeks to ensure that even more people, especially women, come within its reach. I beg to move.
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Baroness Thomas of Winchester: We strongly support this amendment, which, as the noble Baroness, Lady Hollis, said, allows greater flexibility over voluntary backdated NICs to allow workers to fill in gaps in their NI record for any period of their working life up to a total of nine years instead of the much more limited current arrangement whereby some contribution arrears can be paid within six years. This will be a simple but very important reform which could be brought in before the 2010 reforms to allow women not gaining from the reduction to 30 qualifying years to increase their entitlement to both pensions.
We have to face it: those at the beginning or even in the middle of their working lives simply do not look forward clearly to their retirement years. When and if they do review their pension entitlement, they may find that they have a gap of several years but are too late to buy added years within the current rules. This is a much more modest amendment than the previous one. For that very reason, I hope that the Government will be able to accept it.
Baroness Howe of Idlicote: I support the amendment. I have listened with considerable interest to all the reasons why some of the previous amendments might not be wholly acceptable, but this amendment seems to contain some flexibility and some choice. As we heard, it is strongly supported by the Equal Opportunities Commission and other organisations. The fact that it could be brought in before 2010 is crucially important. I, too, hope very much that the Government will show some flexibility and accept the amendment.
Baroness Greengross: I add my support to the amendment. As the noble Baroness, Lady Hollis, made clear in introducing it, the amendment would rectify the situation of many women, many of whom—as people like me, with my experience, know very well—would be very happy to pay for those extra years. They resent the fact that they were not given advice which would have made it possible to do this at an earlier stage so that they could have the full entitlement. Many of the organisations which have been briefing us support a provision enabling these women to buy those added years in a fairly simple and straightforward way. With such support for the amendment, the Committee should also support it. I wholly recommend it, and I hope that the Minister will consider supporting it.
Lord Skelmersdale: I am afraid that I am not persuaded by the eloquence of the noble Baroness, Lady Hollis. I noted first, as I suspect that she and I will have arguments about costs throughout the proceedings on the Bill, that she described the figures she received from the department this morning as “modest”. I do not have the advantage of seeing those figures—though I am sure the Minister will be able to reveal them in due course—but I wonder just how modest is “modest”.
Secondly, the noble Baroness said that even between 5 and 10 per cent of those retiring under the 30-year rule would not have a full contribution record. Some of that 5 to 10 per cent—in other words, about 1 million people—would have the opportunity of using the current system of paying the past six years of NICs. Therefore, you cannot count the entire 1 million or so people to whom the noble Baroness referred. I hope the Minister will be able to cover that in his response.
Baroness Hollis of Heigham: As I say, although I tabled the Question several weeks ago, I picked up the Answer only today, so I have not had time to digest and fully work through the department’s figures. However, they suggest that, depending on the assumptions, there would be a diminishing profit to the Treasury for about three years and an increasing cost thereafter. The figures were for only 2007 to 2009 and covered six years rather than nine. They could not, for example, take account of the problem of those who might not wish to buy those years, calculate what implications and interaction there would be for those who are married or calculate the implication of the de minimis rule. That is why the figures cannot, by definition, be robust, and I do not blame the department for that at all. I did not give precise figures because there are too many conditionalities attached to them to be able to calculate them. However, I can give figures for the individual. I emphasise that until now the Treasury has found it absolutely fine to have this provision for about 250,000 people a year who know how to make good their defaults in the system. As we do not know how many women who are not doing so will take advantage of that—the department, perfectly legitimately, cannot tell us—we cannot give precise costs. All we can suggest is that there will be a modest profit to start with and a modest loss thereafter. However, it is certainly affordable for the individual woman—or man come to that—and, as I say, already exists for the rest of us.
Lord Fowler: I have listened to the debate and—I had better say this cautiously—found myself very much persuaded by what the noble Baroness, Lady Hollis, said. There is a slight, very unusual, division between myself and my noble friend, but certainly not on a grammar school scale at this stage.
Buying back is an extremely good idea which should be encouraged. I am not sure that it adds to the noble Baroness’s advocacy of the citizen’s pension because I do not think that it fits in with that. However, if we continue with the contributory principle, it would certainly fit in. We do not have an insurance principle; we have a contributory principle. As I understand the Government’s policy, we shall continue with the contributory principle. Therefore, one wants to make that contributory principle and its practice as flexible as one conceivably can. It is common sense to follow what the noble Baroness, Lady Hollis, suggested.
I should point out that buying back takes place elsewhere in the public sector in the occupational area. For example, Members of Parliament are allowed to buy back although none of us former Members, myself included, can remember how many years we can go back. However, I think you will find that it is a little more than the six years that the Government specify.
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