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I have not yet heard a good reason why this amendment should be rejected but I have heard very good reasons why we should accept it. It would certainly benefit women to a very large extent. It may not be correctly drafted but I hope that the Government will at least accept the principle of it.
Baroness Dean of Thornton-le-Fylde: My name is added to the amendment. I can think of no reason why I should not have added my name to it because it does not introduce any new principle. It would enable what I think we are all trying to move towards; namely, independence for women in retirement. If they have the funds later in life to buy back these years under the principle which has been established elsewhere and, indeed, in the state system, I cannot see any reason why that cannot be considered. I find it difficult to understand the argument that it is not affordable. We do not even have the full figures in front of us. I do not see any objection to the measure in principle and I am unconvinced that there is any financial objection. I am certainly convinced that it would help women to be independent in retirement, which I hope this Bill is striving for; in fact, I am sure that it is.
Lord McKenzie of Luton: I thank my noble friend for raising this important issue and for the debate that has taken place. She touches again on the cliff edge, which we debated earlier. We acknowledged that if these matters could be phased in gently and still enhance the position of many women, that would be worth doing. The cliff edge arises because we have determined to introduce the measure in 2010 because that is the way to maximise the benefit, particularly for women.
The group of amendments that we just debated concerned the payment of national insurance contributions after pension age. This amendment seeks to give greater flexibility over the payment of voluntary contributions to fill gaps in the working life when the contributor was not working for whatever reason. It would, in effect, remove the current time limit for paying voluntary contributions and allow people to wait until the very last minute—just before claiming their state pension—to make up missing years. That has the support of the EOC, and it would especially help women to achieve a full pension. However, the amendment would only benefit people reaching state pension age after 5 April 2010. It would not therefore help those who do not benefit from the provisions in this Bill. I do not believe that was intended, but that is the effect of the amendment.
Time limits for payment of voluntary contributions are dealt with by regulations made under Section 13 of the Social Security Contributions and Benefits Act 1992, and noble Lords may be aware that the responsibility rests with HM Treasury. By way of background, the existing rules for paying voluntary contributions allow contributors up to six years to pay the voluntary contributions due in a particular tax year, although in certain circumstances the time limit can be extended. The time limits were extended from two years to six years for tax years from 1982-83 onwards.
As my noble friend identified, there are extended time limits for the 1996-97 to 2001-02 years. Contributors have until 5 April 2009, or 5 April 2010 if they reached pension age before 24 October 2004, to pay voluntary contributions for those years. That extension was introduced because from the 1996-97 year the then Contributions Agency suspended its annual deficiency notices exercise. That exercise is used to notify contributors that a tax year is not a qualifying year for benefit purposes and to give them the opportunity to pay voluntary contributions. When it was reinstated, the time limits were extended to allow contributors at least the amount of time to pay that they would have had if the notices had been issued at the correct time.
The current rules are already widely drawn and allow those over state pension age to pay voluntary contributions to fill gaps in their contribution record. For example, a contributor reaching state pension age today, who did not pay voluntary contributions in the 2006-07 tax year, would have until 5 April 2013 to pay those voluntary contributions, albeit at the voluntary contribution rate applicable in 2012-13. That gives those retiring the same wide degree of flexibility as someone yet to retire.
We do not believe that it would be appropriate to remove the time limits for paying voluntary contributions. It would be incongruous to allow people unlimited time to pay voluntary contributions when those who are employed or self-employed have no choice about when they pay national insurance contributions. Time limits are an important feature of the “pay as you go” system of NICs, in that current payments of contributions pay for current claims to contributory benefits. The amendment would distort that feature by incentivising delayed payment. We are not aware of any evidence that the time limits are too restrictive for those who generally pay voluntary contributions. Also, we would not wish to create an incentive for people to delay paying voluntary contributions until the last minute, because it would create additional complexity and add to the costs of administering those arrangements.
The amendment restricts to nine the number of years for which voluntary contributions can be paid over a working life by someone just about to claim their pension. I am not sure whether that was intended. That would be less generous than the current arrangement, which imposes no restriction on the number of years for which an eligible contributor can pay voluntary contributions, subject to the relevant time limits. You can pay class 3 contributions for 30 years so long as you pay them in each case within the six-year time limit. Such a restriction would add complexity to the current arrangement, and it would ill serve the very people whom my noble friend seeks most to help.
In conclusion, the existing time limits for payment of voluntary contributions are both appropriate and necessary. However, I recognise that some people would still not achieve a full basic state pension, despite the more generous arrangements in the Bill. But to allow them to make up missing years at the point when they are due to retire would require them to make complex financial decisions. For example, it might not be sensible for a married woman with a smaller basic state pension based on her own national insurance contributions to pay voluntary contributions when she reaches state pension age if she would be entitled to a higher pension based on her husband’s national insurance record. I understand the concerns that have been raised and assure noble Lords that we will keep under review the current arrangements for paying voluntary contributions. I remind noble Lords that changes to the time limit can be made by secondary legislation if they are deemed to be necessary.
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On the issue of cost—although the amendment would apply only to people retiring post-2010—we have produced estimates that assume that people who are projected to reach state pension age in 2007, 2008 and 2009 without a full basic state pension, and assume that they buy as many extra qualifying years as are needed to provide a full basic state pension, up to a maximum of six years, when they reach state pension age. Those costs, which my noble friend described as “modest”, would provide net benefits in 2007, 2008 and 2009 of £1 billion, £0.5 billion and £0.2 billion respectively. Thereafter, there would be costs in the order of £0.8 billion, £0.9 billion through to £0.8 billion in 2030. Those costs would then begin to tail off.
Baroness Hollis of Heigham: Given the figures that have emerged today regarding the net additional cost of the gap between the price and the value of those increments for additional people who might come in—there are many less-than-robust assumptions about who might come in, and that is why the figures are difficult—what is the current deficit? At the moment, people are paying £161 million for 250,000 “people years” of class 3 contributions. What would the figures be if one applied the same arithmetic to the current arrangements?
Lord McKenzie of Luton: I do not have those figures to hand, but will certainly provide them to my noble friend. I was about to say that many caveats surround the figures that I have outlined, as she recognised. We should be cautious about calling such costs “modest”, quite apart from the principles that would be involved in going down the path that we have suggested. For reasons of cost and practicality, on reflection, my noble friend would recognise that the precise drafting of her amendment does not achieve what she seeks. I encourage her to withdraw it.
Baroness Hollis of Heigham: I thank my noble friend for the detail of his reply, which I will work on. He made two points—one on the complexity and impropriety of delay and of being able to pay at any stage, and another point regarding costs. We will return to the issue of costs, but when I asked for the figures, I was told that they were not available—although some of them have become available on the day of the Committee. It is difficult to be certain about what is being compared with what. I hope that my noble friend will do the work for me on this, because I am not sure that I can. I have said that I would be perfectly willing to discover what the cost of a class 3 contribution would have to be to make it cost effective, both for existing holders, who, according to my noble friend, are getting a freebie ride—the better educated, students and so on—and for women who might have even greater need than at present. So there is a bundle of issues associated with cost that we must scratch away at.
My noble friend’s argument regarding time limits hinged on the question of delay. For the life of me, I do not understand the problem. My noble friend said that the amendment would incentivise delayed payments. Why does delay matter? At the moment, if you are in work, you pay your contributions as you go. If you know about it, you pay at the time. If you wish, you can pay for your whole life, as long as you do that within every six-year period, as my noble friend said. I do not understand why delay is even faintly relevant. Apparently you can buy 30 years of class 3 contributions at enormous cost to the Exchequer if you do it within six years, but we cannot, within nine years, apply the contributory principle to women who might come within the range of means testing at the end of their working lives, as the noble Lord, Lord Fowler, argued. I am sorry, but I am baffled by my noble friend’s argument on that. Perhaps he can help me further.
Lord McKenzie of Luton: I will try to help my noble friend. The issue of timing is important. People who are employed pay national insurance as they go along. The opportunity to pay class 3 contributions for an extended period until six years after the tax year in question gives some leeway, but one has to ask whether it is fair when you compare someone who pays their pension contribution on day one in each pay period with someone who says, “I will store up my class 3 voluntary contributions and take a call on it at the end of my working life when I am about to retire”. There is a time cost to money and it seems to me that if we encouraged people to delay making their class 3 contributions until the last minute, that would have an impact on the National Insurance Fund. The scheme has a pay-as-you-go basis, as my noble friend is aware, and there are cost implications to that.
Lord Fowler: I am not sure whose speech I am interrupting but would the Minister have the same objection if, instead of “six years”, one simply inserted “nine years”, without the other parts of the noble Baroness’s proposition?
Lord McKenzie of Luton: If the noble Lord is asking whether the Government would support the idea of being able to pay nine years after a relevant year, then obviously that is not a proposition that we have considered. We have no costings on that, robust or otherwise, but, again, it would move us away from encouraging people to pay on a reasonably expeditious basis. It seems to me that six years allows a reasonable amount of leeway but that nine years moves further away from that principle.
Baroness Hollis of Heigham: I shall withdraw the amendment but I still do not understand why payments have to be expeditious. Apparently they can be made for 30 years up to six years after the event. This cannot be an issue of cost. It is said that it is unfair to allow people to make extra contributions because of the additional cost to the rest of us, but we already allow 250,000 people years to be bought, often by students and so on who go on to be higher-rate taxpayers. However, apparently we are not willing to do this for women.
I cannot bottom out my noble friend’s argument. Why is it bad to make the payments at the end of your working life but good if you do it in the middle of your working life? Some women may know only at the end of their working life whether they need those extra years. If you cannot predict what you are going to need until you reach retirement age, you will be penalised, whereas a student, say, or someone who works all their life in a profession can predict what they are going to get and they can make the contributions. I am still completely baffled by why delayed payments are not permitted. Provided that the cost is right, what is fair for the gander should be fair for the goose.
Lord McKenzie of Luton: Under the current system, if someone has been in employment for a number of years or, if working abroad, has been out of the labour market for a number of years and decides to make voluntary contributions, he must do so within six years of the tax year in question. Under my noble friend’s proposition, he would not have to make the payment at that time but would simply store it up and take a view of the situation in 20, 30 or 40 years’ time. My point is that there have to be timely payments into the National Insurance Fund.
Lord Oakeshott of Seagrove Bay: As we are in Committee, perhaps I may ask a question. I have listened to the debate and, in particular, to the noble Baroness, Lady Hollis. Does the Minister agree that here we are talking about a very male-based contribution model? Inherently, many women’s lives are less predictable, so the point that the noble Baroness is making is very valid.
Lord McKenzie of Luton: That may be right. The current system, which we are about to change, is very male-oriented. My noble friend has made that point with great conviction during Second Reading and on previous occasions, but we are changing the system.
Under the Bill—with all the credits that are available for people with caring responsibilities and with the truncated period of 30 years to get to full basic state pension—there is considerably more flexibility in a working life. It does not seem unreasonable to hold to the view that you can still make up contributions but that you must do so within six years. There may well be a case for looking at whether the deficiency notice provides sufficient information for people to make the right sort of judgments. However, if we go down the path of saying that people who want to make a class 3 contribution to improve their pension outcome need not do so until the end of their working life when they are about to get their state pension or, indeed, until possibly six years after that, that will change the landscape.
Lord Skelmersdale: It seems to me that we are departing from a principle with which I thought we all agreed: namely, the contributory principle. At the moment, the only dent in that contributory principle is the six years relating to voluntary contributions. Extending that further will increase the debt until eventually it becomes a gaping hole, will it not?
Baroness Hollis of Heigham: The problem is that the contributory principle is based on a Beveridge-type principle, which, given the society at the time, was the male model of working life. However, it has produced many excluded groups. Governments of all complexions, very decently, have tried to bring more and more groups within the contributory system—since 1978 we have had HRP, disability benefits, various credits and the like and now this Bill. We can no longer simply tie this in to a pay-as-you-go system in a mechanical way—you pay it at a point in time. The six-year rule exists to help another group: for example, students and those who work abroad temporarily. There are still groups—these amendments seek to address them—who will remain outside any contributory system, yet most of us would regard their lives as valuable and we would want to see them brought within the system so that they can enjoy as full and as complete a basic state pension as possible.
This amendment would allow head space for that. Rather than having a series of one-off solutions—multiple jobs, grandparents, whatever—producing half a dozen different possible solutions, we can seek to do it this way. If we do not, I can promise my noble friend that, in a couple of years, someone else will return with another Bill trying to make good further deficiencies in a contributory principle that has been stretched and stretched. This is a contributory system that you pay at the end of your life to make good shortfalls.
I am still completely baffled why a delayed payment is inferior and bad whereas a payment within the six years is good. I find that incomprehensible. I am very grateful for the support from all Benches for the amendment. As my noble friend will expect, I shall return to the matter on Report in the hope that he can give me better news and more encouragement than he has been able to give today. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 3 [Contributions credits for relevant parents and carers]:
Lord Skelmersdale moved Amendment No. 7:
The noble Lord said: We move on to carers and, in this amendment, to a particular group of carers who concern me a great deal. Members of the Committee may have heard a harrowing report on the “Today” programme a few weeks ago concerning children with disabled parents who cope with school and caring activities. I came to know about their plight some years ago when the Stroke Association started giving annual life-after-stroke awards. One of those is a carer’s award which is frequently won by children.
My amendment is a probing amendment on an aspect of the carer contribution reforms that I do not believe was debated as the Bill proceeded through another place. Specifically, I wonder how current arrangements stand, should stand and will stand in relation to children who are carers. What happens to them after school-leaving age? No doubt some will get part-time jobs, but others will become full-time carers and be unable to start work because of their caring responsibilities. I do not know—I hope the Minister will tell me—whether I am talking of a constant number, or of a growing band of children. Since I tabled the amendment, it has been suggested to me that the latter is the case, but I simply do not know. Whatever the case, those children do an incredibly difficult job and one that, in the past, society has tended not to notice or to make accommodation for.
The reforms in the Bill will, of course, make it easier for these children to move into their adult years without being penalised, rather than rewarded, for their exceptional contribution to society. I particularly welcome the change that means that it is no longer necessary for a person to have paid at least a year’s worth of contributions before he or she can claim a pension. I repeat that some children today will never have an opportunity to take a full-time job, whether because of the weight of their caring responsibilities or because those responsibilities prevented them getting as good an education as they might have had or for many other reasons. I hope that the Minister will be able to reassure me that these children will be moved on to the system swiftly and simply and will receive contribution credits when they reach school-leaving age.
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Employment is an extremely important subject in the context of the Bill. It is not just about the wage received. Numerous studies show that the employed are healthier and happier. Social networks are increased, self-confidence grows and carers will be much better served by a Government who concentrate on providing sufficient support so that they are able to enjoy a full life outside their caring responsibilities. However, for some people, perhaps many people, that is not the case, so I beg to move.
Baroness Thomas of Winchester: I shall speak to Amendment No. 8. I am fully aware that it is pushing at an open door. After Second Reading, the Minister sent a helpful letter setting out how the new policy of carer’s credits for those caring for at least 20 hours a week would work in the light of the agreement now reached that if carers looked after those not in receipt of certain benefits, they could still qualify if certified as carrying out this important work by a health or social care professional. Not only will this new right build up entitlement to the basic state pension, it will also increase the number of people accruing entitlement to the second state pension. In the letter, the Minister reiterates the announcement made by James Purnell, the Minister of State for Pensions Reforms, and goes on to say:
- “also stated that we would explore how health and social care professionals will be involved in the certification process for the carer’s credit through the review of the 1999 national carer’s strategy”.
I gather that that is due to be completed by the end of this year, after which the relevant regulations are expected to be laid.
This all sounds fine, but we need some cast-iron guarantees. The word “explore” and the phrase,
could lead to drift, particularly as there is a little time in hand. Can the Minister assure the Committee that there will be no foot-dragging in the area of deciding exactly who can qualify as a carer and who can certify a carer? I am certainly not ungrateful for the way that the Government have moved on this matter, but we need a few more certainties on the record.
Baroness Hollis of Heigham: Are the other amendments in this group—Amendments Nos. 12 and 13—going to be moved?
Lord Skelmersdale: There are no other amendments in this group. We are discussing Amendments Nos. 7 and 8.
Baroness Hollis of Heigham: My grouping list includes Amendments Nos. 12 and 13 in this group. If they have been ungrouped, I stand to be corrected.
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