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Lord Mackay of Ardbrecknish: Of course, I agree with my noble friend Lord Clanwilliam that to provide an

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adequate income for people in retirement there is a need for a second tier of pension provision. By creating incentives to opt for occupational and personal pension schemes we have allowed for people and their employers to match their provision for retirement to their resources and needs. In that way, we have also shifted the balance from a pay-as-you-go state-based system towards funded private provision. As my noble friend pointed out, assets in British pension funds amount to £500 billion, which is more than all the funds in the rest of the EC put together. We are in favour of a range of non-state pension provision, including both occupational and personal pension schemes. However, no one is obliged to join any particular scheme, which is what my noble friend suggests we ought to consider doing.

Instead, we believe that it is crucially important that individuals have a choice of pension provision, so that they can make the best arrangements for their own circumstances. My noble friend believes that occupational pension schemes will eventually be replaced by group personal pensions. We expect salary-related schemes, a very important type of pension provision, to continue to play a major role in pension provision in the future. Moreover, contracted out money purchase schemes, which first became available as recently as 1988, already have half a million members. The measures contained in the Bill to introduce age-related rebates should ensure the continued popularity of this type of provision, and thus a continued range of pension choices.

My noble friend referred to the levels of charges for appropriate personal pensions, and mentioned that these could be reduced if such plans were mandatory, since no selling would be required. Making appropriate personal pensions mandatory with this objective in mind would surely be using a sledgehammer to crack a nut. Such compulsory investment is likely to act as a disincentive to other forms of savings, some of which may provide a better return to individuals than paying more into a pension scheme.

I can appreciate that my noble friend is trying to ensure that people invest sufficient funds for their retirement income and make adequate contributions over and above the rate of the contracted out rebate. In this aim, we are of one mind, but I do not believe that this amendment proposing compulsion is the right way to go. It is better to promote confidence, to educate and to use publicity to encourage people to plan to maximise their retirement incomes. I hope that with those few words of reaction to my noble friend's proposal he will feel able to withdraw his amendment.

The Earl of Clanwilliam: I thank the Minister for his reply and the noble Baroness, Lady Seear, for her kind words. I agree that we have a problem. The most important point that I made in the amendment was that the savings should start before the age of 25. That is a vital requirement. Anything that one does before the age of 25 will give a reasonable and successful result when one is 65. That vital point is missing from my noble friend's kind remarks. However, I quite agree that this is neither the time nor the place for such an amendment

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to the Bill. I put it forward for consideration in the future. With those remarks, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 4 [Equalisation]:

The Principal Deputy Chairman of Committees (Lord Tordoff): I should advise the Committee that if Amendment No. 184AA is agreed to, I shall not be able to call Amendments Nos. 184AB or 184AD to 184AG.

[Amendments Nos. 184AA to 184BA not moved.]

Baroness Hollis of Heigham moved Amendment No. 184BC:


Page 109, line 48, at end insert:
("( ) In section 44(3) (b) of that Act (as amended by this paragraph) following the words "for the relevant years" there is inserted "or, if there are more than 39 such surpluses, of those 39 which are the largest".").
Page 109, line 50, at end insert:
("( ) In section 44(3) (b) of that Act (as amended by this paragraph) following "for the relevant years" there is inserted "or, if there are more than 44 such surpluses, of those 44 which are the largest"").

The noble Baroness said: I wish to move Amendment No. 184BC and speak to Amendment No. 184BD. The amendments deal with the best years rule. Our anxiety is that equalising the pension age at 65, as the Bill proposes, hurts women twice over. They not only have to work five years longer for the basic state pension, but because their SERPS additional pension is averaged over the whole of their lifetime and in the last five years they may not be in work or only in low paid work, they will receive a lower pension at the end. They work five years longer for a lower pension. We cannot believe that that is what the Government intended and these amendments would correct that situation.

The first of the amendments proposes that instead of averaging SERPS over the whole of one's working lifetime of 49 years, as with the basic state pension, it should allow a modest flexibility to discard up to 10 years under the first amendment, or up to five years on the second amendment. By dropping the 10 weakest years, as the first amendment suggests, we would bring SERPS into line with the state pension where five years may be dropped at any rate and a further five years by autocredit.

The second amendment would allow the dropping of the five weakest years, thus at least ensuring that women are no worse off than at present and low paid men—those not in occupational pensions but in SERPS—would similarly benefit. Thus, the amendment benefits women and low paid men alike. It is well targeted. Without subverting the whole-life basis of SERPS, it introduces a modest flexibility; the discard of some years which the basic state pension allows. It would permit years to be dropped at the end of the working life or, for someone in part-time work, caring for a partner, or if they are unemployed.

The cost would be relatively modest for the state. No expenditure would come until 2017 or 2024, according to whichever amendment was pursued. It would be

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phased in gradually and it would mean that women would not enter the new regime penalised twice over by working longer for less. I beg to move.

Baroness Seear: Very briefly, I support this amendment. I want to underline the fact that it gives some additional help to the worst paid of the people who are likely to be most poor in old age. The second point to emphasise is that it is helpful to both men and women. In these days when the earnings of both sexes are very much interrupted, the ability to choose the best years rather than having to average over the whole uneven earnings, therefore pulling down the ultimate amount of the pension, is very valuable. It is particularly valuable to the poorest people, who will need the greatest help in retirement in old age.

Lord Mackay of Ardbrecknish: The purpose of this amendment is to provide for SERPS to be calculated on the basis of the best 39 years, or, as in one of the other amendments, on the basis of the best 44 years of a person's earning. Either option would cancel out the effect of moving the SERPS working life for women to that which currently applies to men. The 39-year option represents a significant improvement on the current position for women reaching state pension age after 2017; while the 44-year option would ensure that the current position remained for most women. Either option would represent a significant improvement for men compared with current arrangements. The amendment seeks to improve—or, in the noble Baroness's words to safeguard—the position of women as the retirement age moves to 65. I am quite surprised that we have not discussed the movement from 60 to 65, but we have not. This is, as it were, a consequential amendment—-

Baroness Seear: I assure the noble Lord that we shall.

Lord Mackay of Ardbrecknish: I am glad to hear that we are to discuss that point—I presume under Schedule 4. But we have not discussed all the various options that were on the Marshalled List. We seem to have passed them by.

To return to the point that I was making, the principle involved here is this: because we are shifting the retirement age for women to 65, it obviously adds five years to their working life. In doing so, we add five years to what perhaps I might call the "denominator" in the SERPS provision. The SERPS provision will obviously take account of the five extra years of working, both of the income during that time and of the years themselves. We have here two proposals from which to select; namely, that we return to the best 39 years, or that we take the best 44 years—and in order to keep matters equal between men and women, we drop the retirement age for men to the same as it was for women. The 39-year option would represent a significant improvement on the current position for women reaching state pension age after 2017; while the 44-year option would ensure that the current position remained for most women. As I have said, either option

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would represent an improvement for men—one of five years and the other of 10 years compared with current arrangements.

We see here another amendment that is designed to mitigate the effect of our proposals for women and to bring benefit to many better-off men. There have been a number of amendments during the course of today, and on other days, which have explored the possibility of more public expenditure when it comes to the matters that are before us.

SERPS was introduced in 1978 with a view to providing all employed people with a second-tier pension and to reduce reliance on income-related benefits. We recognised in the mid-1980s that the cost of the scheme would escalate rapidly. My right honourable friend, Norman Fowler, was then Secretary of State. The Fowler reforms were introduced, which were designed to curb that cost in the next century.

The original intention was that SERPS would represent 25 per cent. of average revalued reckonable earnings over the best 20 years of a person's life. The 1986 reforms removed the best 20 years' provision, and reduced the accrual rate in stages for people retiring after April 1999 to 20 per cent. for people retiring in 2010 and indeed later. We decided—and Parliament agreed with us at the time—that the provision of SERPS, as it was then being worked out, would become unsustainable into the next century. We therefore made those changes.

At the same time, provision was made for home responsibility protection to be extended to SERPS from April 1999. That was intended to cushion the impact of the reforms for people in vulnerable groups who would have particular difficulty building up additional pension provision. In the State Pension Age White Paper we confirmed that we would fulfil our commitment to bring in the necessary regulations to do this. We have already discussed the importance of home responsibility protection when it comes to the state retirement pension. People—it has to be said that it is most usually women, but that may not necessarily always be the case—who have responsibilities, let us say, for looking after children and who opt to look after the children at home, or those who stay at home and give up their job in order to care for an elderly relative, can receive home responsibility protection. This reduces the number of years that they have to target before they are eligible for a full state pension. That is an important aspect of the retirement pension provision that we have made in order to help women who find that they cannot have a full lifetime's contribution record because they stay at home to look after their children or perhaps to look after somebody who is unwell and who needs the kind of care and attention which they have to give up their jobs to provide. So home responsibility protection is already there for old age pensions. It will be introduced. As I say, provision is in the White Paper. We confirmed that we would fulfil our commitment to bring in the necessary regulations to do this.

The Bill also introduces a further measure that will provide help for families and working disabled people with low incomes to improve their additional pension entitlement. I am sure that everyone accepts that the

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same argument applies to people who have families and to working disabled people because they cannot accumulate over their lifetime the kind of income that will give them the level of pensions that we are looking for. I believe that that is one of the points to which my noble friend Lord Clanwilliam referred in his speech a few moments ago; namely, that if people are asked to make compulsory savings, there is something of a problem in providing for those people for whom such compulsory pension provision would make quite a dent in their income. Clearly, we appreciate that there is a problem with regard to these matters. We are trying to help in this regard.

Both men and women in low earning families will be helped by the two measures that I mentioned; namely, family credit and disability working allowance. These measures treat FC and DWA as if they were earnings in the calculation of both SERPS and basic state pension, thus focusing help on workers with low incomes. That help is targeted on groups of people with low incomes who will face particular difficulty in preparing for their retirement—both those with families and those with disabilities. It promotes working, and it encourages the take-up of in-work benefits such as family credit, which are there to help people who can only find low earnings. To encourage them to take up work, the family credit scheme comes into effect and makes up their income. We believe—and I believe that everybody agrees—that this is an important part of the provision to encourage people into work, to encourage those who are in work, and to make sure that those in work (even if it is quite low paid) are helped with their family responsibilities. These provisions in the Bill will be directed at this particular group of people, whom, I am sure, the noble Baroness would wish to help. I am referring to the kind of people who may find themselves with a poor contribution record towards the end of their working lives. The noble Baroness rather hurried over that argument. But I am saying that our measures on family credit and DWA will help. The improvements to family credit and DWA, such as the £10 premium for those working 30 hours or more per week as announced in the Budget, will provide further enhancement of SERPS entitlement.

Any of the improvements—such as the various systems that will come to your Lordships' House later in the Session when we come to the job seekers' Bill—on the income of low-wage earners will eventually feed through to their SERPS provision, as does home responsibility protection when it comes to people looking for the old age pension.

The reforms before us ensure the continued affordability of the scheme into the future, while protecting the position of the most vulnerable groups in our country, some of which I explained. By contrast, the amendments would make inroads into the steps we are taking to put SERPS on a long-term sustainable basis. They would raise expenditure in the long term in a poorly-targeted way. Indeed, high earning men would benefit as well as low earning women. I cannot believe that that is what the Benches opposite seek to do. I find it hard to square their normal desire to help the poorest

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in the community with the way in which the amendment brings in for help some high earning men who would gain from the reduction in the number of years.

We need a viable, affordable, long-term SERPS provision. It does not make sense to make available across the board the five or 10-year "free" period which the amendment would provide. Earlier this evening, when asked to find another £250 million in order to fund the frozen pensions of people in retirement abroad, the Front Bench opposite did not vote —I presume because they realised that that kind of commitment is not responsible. I presume it was also felt that in the unlikely event of their being elected into government, they would find it extremely difficult to find that amount. They probably also felt that if they had voted in favour of spending another £250 million, I would have my calculator ready to add that on to the total amount of public expenditure that they were happily and busily pledging.

Therefore, earlier this evening, we saw a small indication of what we must probably welcome as financial prudence and responsibility. It is important that we take a financially prudent and responsible attitude to the provision of SERPS. Many of the proposals on SERPS, such as those put forward by my right honourable friend Sir Norman Fowler, were designed to make SERPS a more affordable provision into the next century. If we had not done that, we would be putting on people in 2020 and 2030—just as we would be if we did not move the pension age of ladies to 65—considerable extra expenditure which is not sensible. It is certainly not sensible for those of us who hope, with a bit of good luck and keeping fit, to be there to see those days come. We hope that the taxpayers and workers at that time will be able to fund the pension provision and the SERPS provision which will be in place at that time.

Those of us who are in the happy position of being members of occupational schemes, where the funds are already earmarked, in place and being invested, are particularly privileged. We must recognise that in order to ensure that those who are not in occupational or personal pension schemes are able to obtain some money in retirement to give them a reasonable life, which is what we all want.

The proposal is that we add five or 10 years; that is, by reducing the number of years in the denominator over which the SERPS entitlement will be calculated by five years in the case of one amendment and 10 years in the case of the other. We would have to consider whether such a proposal could or would work alongside the generous assistance already built into the system by means of HRP. I have already mentioned how HRP will help women—and that is what the noble Baroness, Lady Hollis, is worried about—both in accumulating a full record for a full state retirement pension and also in helping them with SERPS provision, which we intend to take forward by April 1999 as we promised.

The SERPS position of those people—mainly, though not always, women—who have to stop work at 60 because of caring responsibilities or if they are receiving incapacity benefit, is something the noble Baroness,

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Lady Hollis, specifically mentioned in her speech. One of the problems, whether in this debate or in the 60/65 age limit debate, is that there is a tendency to assume that the situation today will be the same at the end of the century, in 2010, 2020 and 2030. But that is not so. The position of women in the workplace is changing—some noble Baronesses and even some noble Lords may say too slowly. But more and more women are in occupational pension schemes and will have full contribution records. They will therefore accumulate, whether it be one-eightieths or one-sixtieths, the same sort of pension provision as their male equivalents. Equally, more and more women will be working for the whole of their working life and make the necessary Class 1 contributions. That means that they will be eligible for a full state pension in their own right.

A change was made in 1977 to remove what was then the married woman's small stamp under which married women did not contribute to their own pension provision but were entirely dependent on their husband's contribution record. That is working through the system. However, more and more women will be coming to retirement—not immediately but we are looking into the next century—for whom that option was not available and therefore they did not make that choice. If they were in employment they paid class 1 contributions and therefore will be building up pensions in their own right.

We have to look ahead when we are discussing these issues: whether it be this issue which concerns changing the basis of the SERPS calculation or looking at the 60/65 argument. We must not look at the position as if nothing will change between now and 2010/2020. The position will change. It is gradually changing already as women take an equal place alongside men. They are expecting—and perfectly correctly expecting—to retain their jobs just as long as men. Consequently, many younger women may continue working until their new pension age of 65 and will get more SERPS from the extra years of earnings revaluation. In fact, they may well get a higher pension than the lower one which the noble Baroness fears.

As we look ahead to 2020 we come on to the point which arises in later amendments. I am surprised that it has not already arisen as there are down on the Marshalled List two important amendments. There is an amendment in the name of the noble Lord, Lord Monkswell, whom I so missed hearing this evening, on the subject of whether we should go to the age of 63 as a sensible compromise between men and women. But we did not hear about that. I am not sure whether we are past the amendment which introduces a flexible decade of retirement. I am quite surprised at how matters which were considered at Second Reading to be great issues have not been discussed. I prepared quite lengthily for an interesting debate on all these items. However, all of a sudden the noble Baroness, Lady Hollis, and the noble Baroness, Lady Seear, have had a change of heart and think that there is no point in inviting the noble Lord the Minister to have a discussion about the matter because the arguments are so clearly on his side and they have therefore withdrawn the amendment. I am tempted to give them the arguments

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whether or not they ask for them because I took so much time looking at them and working out their consequences.

The same is true of SERPS whether the age is 60, 63 or 65 or whether there is a flexible decade. The situation is moving dramatically. It is changing and will continue to change over the next few years. As we move into the next century the ratio of those available in the workforce to those who are retired will go in what I might describe as the wrong direction—certainly, the wrong direction if one is elderly. In 1991 the number of people of working age in the population was 34.4 million. In 2010 the number will be 36.2 million. In 2030 the number will be 33.7 million. In 2050 the number will be 32 million. With that kind of picture, I do not think one can say that just because today unemployment is happily coming down, and coming down quite considerably, although it is still too high, the same factors of people moving out of the workforce as readily as they do today will be the same in 20 or 30 years time when the number of people of working age will have declined by the kind of figures I have just mentioned. We cannot assume that people who today might not be able to have a job or keep a job between 60 and 65 will be in the same position when we come to the years ahead.

Women will be able to secure and stay in reasonably paid work until they are 65. With our proposals not starting until then I do not believe that one can predict forward from today. Even today just over half the men between the ages of 60 and 64 are still in work or are seeking work. Even at the age of 64, 40 per cent. of men are still working. When one considers the various occupations, such as the Civil Service, which already allow for a retirement age of 60, one can see that a great many people who want to carry on working are perfectly able to carry on and to build up SERPS entitlement, if they are still in SERPS, or to build up their ordinary occupational pension entitlements.

One has to look quite carefully at this amendment and ask whether it is really sensible. A situation is proposed where the SERPS divider, if I can call it that, will be related to the number of years people will be able to work. The idea of giving a five-year or 10-year free period is not soundly based. It ignores what the labour market is likely to look like in the years ahead. It also ignores people who are well enough off and who will gain an advantage, as I am sure the noble Baroness does not intend. It will increase the cost of SERPS on the working population at that time. The correct way forward is that which we outline in the Bill. With that explanation I hope that the noble Baroness will withdraw her amendment.


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