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Baroness Hollis of Heigham: I do not know whether the speech was accurately reported. The noble Lord's original description was correct: the state second pension is for those earning--not those not earning--up to £9,500 and stakeholder pensions from £9,500 to £21,000. The issue of the debate between us may be merely at what point is moderate to high. But there has been no change in any of that.

Lord Higgins: But as I understand it, this was the information in the press release issued by the department. Perhaps the Minister will tell the Secretary of State that her understanding, if not his, is that stakeholder pensions are not for middle and higher earners.

Baroness Hollis of Heigham: But they are for moderate earners. The conjunction may be where someone is regarded as a higher earner or simply above the average or median earnings line. Let me give the reassurance that nothing has changed. The noble Lord's original description was exactly right. All we may be discussing is at what point we classify someone as being a higher earner as opposed to being a moderate earner.

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Lord Higgins: That reply is helpful because the matter will arise in subsequent debates.

There is another problem directly related to a point made by the noble Baroness in moving the amendment. One of the main arguments put forward by the Minister in response to the noble Baroness, Lady Castle, is that there is a huge advantage in the state second pension because people are deemed to have made contributions who were not able to do so under SERPS. The amendment seeks to extend that even further. But it still raises the question of whether, when the second state pension finally comes to fruition, we shall find that it is above the minimum income guarantee.

The state second pension will be a flat-rate pension. As I understand it, it will not be uprated in line with earnings. So the Government's apparent munificence in saying that they will give more for carers, the unemployed or whomsoever may turn out not to produce any real benefit at all at the end of the day. It could be purely a paper operation because of the interrelationship between the non-earnings related benefit and the earnings related minimum income guarantee. Some important issues arise in the context of the noble Baroness's amendment which we need to get clear in our minds. It may be that in reality her amendment costs the Government nothing, but in reality it is also the case that the people she wishes to help get nothing at the end of the day.

Perhaps I may make one other broad point. We do not know what the liability will be either of the noble Baroness's amendment or of what is proposed. I was going to say that I have been "lumbered"--I think that would be the right expression--with the Government Resources and Accounts Bill as well. The departments really ought to start working on estimates of the liabilities for the government as regards the state second pension. If we are to have a government balance sheet, it is not enough to have a marvellous document setting out the assets; we ought probably to have an equally thick document stating the liabilities which both the noble Baroness who moved the amendment and the Minister seem to be piling up for us in the future.

Baroness Hollis of Heigham: Amendment No. 111 seeks to exclude the requirement for low earners to have earnings at or above the annual lower earnings limit to benefit from the low earner's boost to £9,500.

But the state second pension is a contributory benefit based on earnings factors. To have an earnings factor a person must have had earnings on which national insurance contributions have been paid or treated as paid. Therefore, the effect of the amendment would be to give the low earner's boost to anyone who had as little as one week's earnings in a year over the weekly lower earnings limit (£67 from 6th April).

The Government want to help the poorest pensioners. That is why we have introduced the minimum income guarantee and the rest of the package. The basic state retirement pension is a secure foundation but it was never meant to support the

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lifestyle that most people want today. Most people have a second pension--60 per cent of pensioners have income from an occupational pension; others have income from savings.

The Government believe that the best way to have secure retirement is to use the basic retirement pension as a solid foundation on which to build a second pension. That is what this Government's policies will deliver for millions of pensioners.

Perhaps I may briefly explain how our proposals for the state second pension will benefit low earners. It will reform SERPS so that it refocuses help on those who need it most and who have the least opportunity to build up good second pensions themselves: 4.5 million low earners will get more than double what they would have received under SERPS; 2 million carers and a similar number of long-term disabled people will build up a second tier pension for the first time. I was pleased that the noble Lord, Lord Goodhart, felt able to welcome our proposals for the state second pension.

I should like to remind the Committee that, without our pension reforms, by 2050 around one in three pensioners would have to rely on the minimum income guarantee. Our reforms will reduce that proportion from one in three to one in five. We shall be lifting over 2 million pensioners off MIG, and people will remain above it for a considerable time.

Let us take, for example, someone who earned as little as £3,500 throughout their working life (£60 to £70 a week). That person will retire on a combined pension of £85 a week in today's earnings terms and will stay clear of the minimum income guarantee for nine years. Couples do even better. Their pension will keep them above MIG for 21 years. Most people over 65 are in couples; they are not single people. The reference will be to single people when the earnings period relates to the late 1970s and the 1980s.

Members of the Committee, and certainly my noble friend, will recognise that it is a fundamental principle that someone in an earnings related pension scheme cannot build up a pension which is more than his or her average weekly earnings. The amendment would give the low earner's boost to anyone who had as little as one week's earnings in a year over the weekly lower earnings limit (currently £67).

There would be every incentive for the economically inactive to find part-time work for a single week just to qualify for the state second pension. We should not forget that the retirement pension is a contributory benefit and that it is not possible to get a qualifying year for basic pension on the basis of one week's contributions alone. But this amendment would give a year's entitlement to the state second pension for precisely that--only one week's contributions. So someone who had only ever earned the equivalent of £67 for one week in a year (an average of £1.29 a week) would receive a state second pension of £54 a week. As well as being costly, that cannot be right in principle in an earnings related second pension scheme. Or, more typically, someone who earned £40 a week--for example, 10 hours at £4 an hour working in a cafe, and who worked a fortnight during the summer and

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received £80 a week--would under my noble friend's amendment receive a state pension of £54, higher than her average earnings of just over £40 a week. It cannot be right to have a pension scheme which produces a higher pension than a person would have earned in earnings alone, when it is meant to be an earnings- related pension.

Perversely, the amendment would not include those who had earnings of less than £67 for every week of the year. So someone earning £50 a week, or £3,000 a year, would not benefit, but someone earning only £70 in one week and nothing for the rest of year would.

If the aim of the amendment is to target the poorest employees, regardless of the contributory principle, it is likely to be wide of the mark. Many of the lowest earners are to be found in households with another higher earner, or where there are other sources of income.

Indeed, many of the poorest pensioners would not benefit from the increase to their state pension income at all, particularly where they do not have entitlement to a full basic pension. That is because it is taken fully into account in assessing entitlement to income related benefits, so their overall income would not increase.

The basis for calculating the state second pension will be the same as that for SERPS; that is, the earnings factor--it is an earnings related pension. The amounts are all based on the earnings on which someone has paid national insurance contributions in the course of a year; they are calculated on an annual basis.

So to calculate entitlement to additional pension under state second pension on a weekly basis, we should need to revise the entire way we calculate additional pension. It would mean assessing pension entitlement on a weekly basis which would hugely complicate the assessment of entitlements and place an impossible burden both on employees and on our operational systems. For employers, the collection of information would be mind-boggling in its complexity. And it would require the Inland Revenue to record that information on every person's account. That is 52 times the amount of work involved in the current annual system.

We believe that our proposals for the state second pension strike the right balance in providing extra help for those who need it most and the prudent use of resources. It has been widely welcomed. It is the building block on top of the state retirement pension which in future will take so many of our older pensioners out of poverty. On the basis of my explanations, I hope that my noble friend will withdraw her amendment.

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