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Lord Higgins: My Lords, I am grateful to the noble Baroness for giving way. The phrase is qualified by the use of the expression "over the long term". What does that mean?

Baroness Hollis of Heigham: My Lords, it means that we expect it to rise as earnings rise. In other words, we expect it to be a forecast. What we cannot do--and what I am unable to do at this stage--is to guarantee that every year it will be actuarially increased by whatever the earnings gap was the previous year. We expect it to rise broadly in line with earnings. There is no commitment to the equivalent of the Rooker-Wise amendment. The Chancellor makes those decisions and the expectation is that it will rise in line with earnings in the long term.

The words are clear in the Statement: we expect--the aim is for--the minimum income guarantee to rise in line with earnings so that pensioners will share in the general and increasing prosperity of the country. That is in the Statement and has been repeated today.

The noble Lord then asked about carers and whether they will be covered. All carers who are recipients of ICA, who are caring for people who have AA or DLA and who qualify for home responsibilities protection, or who are carers of children under the age of five will be credited into the scheme. In broad terms, the carers will receive about £1 a week in pension for each qualifying year of caring. There will be no limit on the number of

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years of caring which are treated in that way. I believe that that answers the noble Lord's question. In other words, a carer need not have been in the labour market if he or she has been caring throughout the whole of his or her working life. Under those conditions such carers would receive an appropriate credit. However, of course, in practice most carers are likely to be in and out of the labour market with rather more fluidity than that.

The noble Lord asked about full annuity rates. As he knows, those full annuity rates reflect the market and the market's expectation of medium to long-term interest rates. We know that the best guarantor of those is a low rate of inflation and tough control on inflation.

The noble Lord asked how the stakeholder pension would replace SERPS and in what ways it would be different from SERPS. The stakeholder pension will probably bring into its orbit the top two-fifths of current holders of SERPS, with the bottom three-fifths holders of SERPS likely to go into the state second pension. The stakeholder pension will be different from SERPS. First, it will be funded. Secondly, people can add to it as and when they wish to, including putting in other savings, possibly putting in an ISA or whatever is appropriate. If people are unemployed for up to five years, they can continue to pay in, perhaps through their savings or through a contribution from their spouse. It will be a money-purchase scheme, so it will be linked to the equity market which could and should in time give a good return. It may attract employers' contributions above and beyond the national insurance rebate. So in all those ways we believe that the stakeholder pension should, in the longer term, offer a better deal, above SERPS, for most people with earnings over about £9,000 to £12,000.

Finally, the noble Lord asked whether people would get a pension and whether we guarantee that the pension--I presume he means the state second pension--would be higher than a means-tested benefit? That would be true provided people had a full working credit, a full working record, but clearly their entitlement to the state second pension will depend on the number of working years. If they have only a modest number of working years, they may still be dependent on means-tested benefits, as now.

The noble Lord, Lord Goodhart, asked about compulsion and why we were not going back to the pre-1988 situation in which employers could require employees to become members of occupational schemes. That has been considered. As this is a Green Paper, it is a point that can be made again as part of a consultation exercise. However, most of us recognise that occupational pensions may not always be the most suitable pension package, particularly for temporary staff, contract staff, part-time staff or mobile staff. For them, a stakeholder pension may be a more appropriate alternative. We are determined that employers in that case, particularly small employers who may not have a decent occupational scheme, shall ensure full access to a stakeholder pension for their employees.

The noble Lord, Lord Goodhart, also asked about the self-employed. He is right that currently at least half of all self-employed people are not in any pension scheme.

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They can be vulnerable. We know that a proportion of self-employed people are very prosperous, but many others, about two-fifths, are on very modest incomes. Effectively, they pay themselves to do work with an average income of only about £8,000 to £10,000 a year. We are consulting on whether they should become eligible for the state second pension with appropriate adjustments to national insurance contributions as a result. But, for many, their business may be their best retirement pension and we do not want to imperil their cash flow by requiring them to make compulsory contributions at the expense of the survival of their business.

It is a difficult issue. As I am sure would the noble Lord, we would like to see all self-employed people with a secure old age. It is not immediately clear that compelling those who are on very low self-pay to pay into a pension is the right way to ensure that. However, we are consulting on the matter. If there is consensus that that is the way we should go, we shall.

I hope that your Lordships will welcome the Green Paper. Apart from a minimum income guarantee safety net which is more generous than we have had in the past, we suggest offering those on an income of £9,000 a year a state second pension which would be twice as generous as they would currently receive on SERPS. Anyone between the lower earnings level and the £9,000 figure would receive a flat-rate state second pension as though they were earning £9,000 a year. So there is a significant increase in pension provision for those between the lower earnings limit and £9,000; and a more generous scheme which gradually tapers out between the £18,500 and £20,000 figure.

Secondly, we are ensuring a stakeholder pension to make good the gap between on the one hand occupational pensions, which are relatively less flexible, and the insecurity and risk of personal pensions on the other.

Finally, in the Green Paper we are ensuring that those who remain within the more traditional occupational pension will have the flaws of the 1995 Pensions Act--I put it another way: the amendments which the noble Lord did not accept at the time--reviewed in terms of regulation, consideration of a central discontinuance fund, consideration of the minimum funding requirement, and the like, and increasing the strength of the role of trustees, including putting a pensioner on the board of the larger pension schemes.

I hope that your Lordships will welcome the Statement which proposes a more generous safety net, a good lift out of poverty for those on low earnings, an increase in pensions for those on moderate earnings and better regulation for those on higher earnings. I think that we have done something here that is really important and valuable to our people.

4.52 p.m.

Baroness Castle of Blackburn: I am sure the Minister will be the first to agree that this is a detailed and complex Statement. Therefore I must not be accused of being begrudging if I approach it cautiously, in particular, as, to coin a phrase, the devil is in the detail.

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I have had the detail put in front of me in the form of a Green Paper only a few moments ago. I know that the Minister has tried hard to be as frank and honest with the House as possible. But many doubts and questions must linger in our minds until we have had time to discuss matters more thoroughly and to think over the implications of some of the remarks she made.

Perhaps I may give one or two examples. Let us take the earnings link. I am glad that the Government have recognised the strength of our argument that to uprate a pension in line with prices, and not with earnings if those are leaping ahead of prices, is to condemn that pension to a slow death. So we are glad to know that the minimum pension guarantee is to be linked to earnings. Its uprating is linked with the movement of average earnings. However, the noble Baroness must forgive us if we are a little less than over the moon because she qualified the Statement with phrases such as "our aim is" and "we expect to". There is no exact chronology, and no exact commitment on a large number of these matters.

The fact then remains that the basic state pension--we are told that it remains a universal non-means-tested benefit--is not to be uprated in line with earnings but may be with prices. In other words, it is intended deliberately that it shall wither on the vine and disappear; and we shall be left only with the means-tested pension. That is one of the Government's aims. I am sure that the Minister, who is an honest and honourable person, will accept that that is what will happen.

My second worry in a number of queries is about the "stakeholder" pension. The word is somewhat dazzling. It sounds so noble. We all have a stake in the community, and that kind of thing. But what exactly what does it mean? I am still not clear how it is to be financed. I agree with the Minister that those who have a good occupational pension scheme are lucky people; and that firms should be encouraged to cover their employees with such a scheme. We always said so in drawing up the original SERPS policy. If the scheme is to be a form of occupational pension scheme for those who do not happen to enjoy one at present, presumably the employer and employee will share the funding. Is the noble Lord anxious to interrupt me?


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