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But let us look at it another way and suppose that this amendment has been passed and its provisions are in force, and someone comes forward with a proposal to move to the present position. Can you imagine anyone giving house room to that, even for a moment? The truth is that people make decisions in ignorance and in conditions of uncertainty, and they make mistakes. A number of examples of change of circumstance have been referred to. Why should we not try to help people rectify those mistakes, particularly when they are claiming something to which they were at one time entitled? What could the arguments possibly be? One argument could be that it is expensive to stimulate take-up. However, the DWP spends millions of pounds encouraging people to claim the benefits to which they are entitled. It does not use the costs of take-up as an argument against doing that, and I hope that it will not be deployed as part of the argument about cost here. People should be able to claim that to which they were entitled.

The second argument could be about administration. Is it difficult to track down the records? Obviously not, because all that information is in the deficiency notice. However, it is completely unacceptable that you send someone the information when it is too late for them to act upon it. If you want to retain the present system, the only way in which you could make it defensible is that every year someone is reminded what their deficiency is so that they then have the opportunity to rectify it.

Perhaps there is an argument that the deal is priced wrongly actuarially. However, that objection applies to all back years bought, not just to back years bought some time ago. Why should we allow a well advised trust fund kid to buy back years but restrict the opportunities to women who may have been informal carers, but below the level which would formerly have earned them a credit?

I hope that the Minister will explain the principle that is being defended here, because I cannot see it. The current proposals seem to have no logic other than that they have grown up over time. As I indicated, the measure is inconsistent with rules in other areas of pensions and it is inconsistent with the philosophy that we should encourage people to claim the rights that Parliament has voted for them.

Lord MacGregor of Pulham Market: My Lords, I hesitate to follow the remarks of my noble friend Lord Fowler about the Treasury because as a former Chief Secretary to the Treasury I thought that he might have been getting at me. I say straightaway that I am on his side in this argument, as, indeed, is the noble Lord, Lord Turnbull.



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4.15 pm

I was not able to attend the debate on 4 June, but I read Hansard very carefully. I found the noble Baroness’s arguments compelling and I agree with the points that were made this afternoon. I am just going to make one point about the costs.

I appreciate this is a different amendment from that of 4 June. I am not sure how different, because I have not been able to follow the complexities. I noticed that the Minister on 4 June rested a lot of his argument on costs. I was astonished to read what he said about costs. He said it was difficult to estimate them exactly and he was making certain assumptions. Nevertheless, he said that the costs, which the noble Baroness, Lady Hollis, described as modest, would provide net benefits in 2007, 2008 and 2009 of £1 million, £0.5 million and £0.2 million respectively. He went on to say that thereafter there would be costs of the order of £0.8 billion, £0.9 billion through to £0.8 billion in 2030. I do not know to what years these billions applied—that was all he said. I thought when I first read it that it must have been a misprint. For the Minister to bring these costs forward, very baldly, at the last minute, and expect to frighten us off is just not good enough. That is what I felt he was trying to do. In addition to looking at the net costs—offsetting the means tests and benefits that would otherwise be incurred—he must give us an accurate breakdown of how he reaches that figure if he is to convince us, because I find it inexplicable.

My last point is that between 1997 and 2001, because of the computer mistake, the Government were prepared to introduce a bigger system, when presumably costs did not enter into it. If the Minister is going to rest his argument on costs, he must be an awful lot more convincing than he was last time.

Lord Barnett: My Lords, could I have a word with the House? There is probably nobody else here who has stopped as much expenditure as I have over the years. I did five years as Chief Secretary—I cannot believe that even the noble Lord, Lord Turnbull, would have stopped as much expenditure as I did during that time. In this case, I cannot think of a reason for opposing my noble friend’s amendment. The case she has made, and that has been made all round the House, is so strong that the only objection the Minister could bring would be based on cost. The noble Lord, Lord MacGregor, has just quoted the figures. The Treasury can do all kinds of calculations—I have done some accounting in my years there and outside. To talk about £0.2 billion or £0.8 billion over God knows how many years is nonsense.

We are talking here about a really important amendment that will help not only hundreds of thousands of women, but others as well, so why oppose it? The only reason the Treasury will have given the Minister will have been cost. The noble Lord, Lord Fowler, mentioned net costs, and I was nodding not because I do not trust the Treasury—that would be a terrible thing for me to do—but because it occasionally gets the figures wrong. In this case, it cannot get it right—it is not possible. Nobody can say what the cost is going to be, net of means-tested benefits.



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We should be aware that total public expenditure these days is in excess of £500 billion. We are talking about petty cash here. To turn down an amendment as important as this for petty-cash reasons would be outrageous and I very much hope that the Minister, whatever the Treasury has told him, will ignore it. He really can afford to ignore it—especially as he is not even being paid for his job.

Noble Lords: Oh!

Lord Barnett: My Lords, it can only be the Treasury that wants the Minister to try to stop the amendment, and I hope that he will ignore it. I hope he will not try, but if he does, then I urge my noble friend to press it and I am sure the House will accept it.

Lord Higgins: My Lords, I intervene briefly to make a point that no one else has made. In 1964, my maiden speech in the House of Commons was on the plight of the so-called non-pensioners who had been left out of the national insurance scheme when it was introduced. I made the point that they were as entitled as anyone else to that part of the national insurance pension not covered by contributions. When we came into office in 1970, the Treasury went along with that and the injustice was rectified. There is a considerable comparison here. People who have been allowed to contribute and who have made their correct contributions get a huge amount that is not covered at all by contributions. The idea that the contributions pay for their pension, if in the past that money had been invested, is totally untrue. In any case, there is a gross injustice for the people to whom the noble Baroness, Lady Hollis, referred. She made an overwhelming case. Points about cost have been made by a number of noble Lords and I shall certainly vote in favour of the amendment, if she presses it to a Division.

Lord Graham of Edmonton: My Lords, I stumbled into this debate and stayed riveted until the end. I cannot conceive of an argument that the Minister could deploy that would destroy the authoritative nature of the comments made all around the House. But I was a Chief Whip for some years and sat on the other side of the House some 10 to 15 years ago. As I listened to my colleagues making an argument, I often said “The Minister must accept this argument”, and found that he did not, because he had a brief which told him to resist. I rise in response to the comments of the noble Baroness, Lady Howe, who said that it was obligatory for people here not only to vote but to stand up and speak out, that is what I am doing. Based on the arguments that we have heard, if this amendment is pressed to a vote, I will support it.

Lord Oakeshott of Seagrove Bay: My Lords, this has been an excellent debate and the mood of the House is clear. I am not sure whether I envy the noble Lord, Lord Skelmersdale, or the noble Lord, Lord McKenzie, less in making their wind-up speeches. I have one question for the Minister. How on Earth can a Labour Government, spending billions to help rich people by giving them top-rate tax relief to save for a pension, oppose poor women with broken work records being able to save for a modest pension themselves? That is what this issue comes down to.



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Baroness Gardner of Parkes: My Lords, I came in specifically for this amendment because it is so important. Following the advice of the noble Baroness, Lady Howe, the more people say that, the better. I will be very happy to vote for it.

Lord Skelmersdale: My Lords, as the noble Lord, Lord Oakeshott, has just said, the Minister and I stand in a rather difficult position—I put it that way—because the noble Baroness is, to an extent, quite right. There is absolutely no doubt that women are disadvantaged under the current system and many noble Lords have spoken of this. The burden of childcare or care for elderly or disabled relatives still falls much more heavily on them than on their male counterparts. Women are still more likely to work part-time or in low-paying jobs. All of this adds up to significant difference when it comes to pension entitlement, leaving women disproportionately likely to be in poverty, as my noble friend Lady Shephard said. That would make them dependent on means-tested pension credit.

With that in mind, I am very sympathetic to the noble Baroness’s reasons for moving the amendment. However, I am not convinced that her provisions will do much more to help women than the Bill already does. The 30-year requirement combined with a much more generous system of carer contribution credits will do a great deal to help women meet the minimum requirements for a full state pension. I accept that there is a cliff edge of nine years, which is why nine years is stated in the noble Baroness’s amendment. What I do not know, and I do not know if anyone knows, is how many women currently use the six-year provision and how many are likely to be using the nine-year provision. Perhaps the Minister will be able to tell us the answer to that.

There is another way of operating all this; it is not my party’s policy. I would like to hear the Minister’s reaction to the suggestion that, rather than being allowed to make up the last six years through class 3 payments, resident people, especially women, should be allowed to make up any six years of missing payments. I emphasise the word “resident” because I know that one of the Minister’s worries is that of increasing the bill for expatriate pensioners.

My noble friend Lord Higgins said that this amendment discourages people from contributing to their pension throughout their life. It is—he did not say this, but this is what his view amounts to—a calculated gamble that they can meet the minimum requirements just before they retire. I do not believe that that is the right way to go.

Lord Higgins: My Lords, I do not think that that is what I said.

Lord McKenzie of Luton: My Lords, I start by thanking my noble friend for giving us a further opportunity to debate—

Noble Lords: Oh!



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Lord McKenzie of Luton: Genuinely, my Lords; this is a very important issue. I also acknowledge my noble friend’s tenacity and commitment. The sentiment of all those who have spoken is clear. I shall endeavour to point out what I think is a significant difficulty with proceeding with the amendment.

I also acknowledge that we are moving from a pension system in which women in particular were discriminated against to one that is much more robust, with a 30-year contribution provision and enhanced credits for care; that is a dramatic change for women in particular.

A number of noble Lords reminded me—chided me over this, perhaps—that dealing with national insurance issues involves the Treasury, where a certain amount of responsibility clearly lies. The headline figure is that around 50,000 people in Great Britain reaching state pension age in 2010 will not be entitled to a full basic state pension either on their own contributions or their former spouse's or civil partner's contributions. And, of course, many more people who have worked in the UK at some point in their lives but who are no longer resident here will also reach state pension age in 2010 without entitlement to a full UK basic state pension.

Noble Lords have acknowledged that most people at home and overseas can pay voluntary contributions but must generally do so within a six-year time limit. For example, a person has until 5 April 2010 to pay for the 2003-04 tax year to make it a qualifying year for the basic state pension.

I say to noble Lords, including the noble Lord, Lord Turnbull, that it is not right that deficiency notices come only towards the end of a person’s working life; they come routinely annually.

As drafted, my noble friend's amendment would limit the overall number of years for which a person could pay voluntary national insurance contributions to nine. However, my noble friend confirmed in Committee that this is not its intended effect. What she and the EOC are seeking is a de facto removal of the time limit to allow people to pay up to nine extra years in addition to the years that they can pay for under the current rules. However, the amendment as it stands does not achieve the objective that she is seeking; at the moment, you can make contributions, as my noble friend acknowledged, over 40 years so long as you pay them at each juncture within the six-year time limit. This amendment would—unwittingly; I do not believe that it was intended—restrict that. I cannot believe that we would want to support that.

Generally, a person can pay class 3 contributions for as many years during their working life as they wish provided that they pay within the time limit. Class 3 contributions are primarily intended to enable people to fill relatively small gaps in their record. The current weekly rate of class 3 contributions is £7.80 regardless, of the individual's age. Payment for a particular tax year enables that year to qualify for basic state pension and bereavement benefits. As such, the contributions represent extremely good value for money.



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4.30 pm

A number of noble Lords, particularly the noble Lord, Lord Dearing, raised the fact that the Government Actuary’s department estimates that class 3 contributions would have to be charged at around £28 a week, rising to around £38 a week after state pension reform, if the cost were to reflect the state pension bought. The Government have long recognised that raising the cost to those levels would create a barrier for those on low incomes who may want to pay voluntary contributions to enhance their state pension and have, therefore, kept the level of voluntary contributions relatively low.

This year, for example, a person who has paid contributions on earnings of around £3,000 can make up the shortfall to accrue a qualifying year for basic state pension by paying about £140 in class 3 contributions. If the contributions were charged at £28 a week the cost would increase to over £500. The current cost of class 3 contributions and the time limits for paying provide a sensible and workable compromise. The time limits prevent those who can afford to from maximising their entitlement to the state pension just before retirement. In the absence of a time limit for payment, a rational person could hedge his or her bets by investing the amount that they would otherwise pay in contributions until they reach pension age. That way they obviate the risk of not surviving to pension age and potentially see a return on their investment well in excess of the increase in the rate at which the contributions were charged over the intervening period.

All that said, the Government have sympathy with the spirit of my noble friend's amendment. It would give those who did not have the means at the time, or were unaware that they could pay, a second opportunity to do so at state pension age. However, such an easement could not be restricted to people living in the UK. We would also need to grant it at least to people who have also been insured in another member state of the European economic area. Here, I am afraid, we come to the crunch point, as a number of noble Lords have anticipated, which is the potential cost.

Since our deliberations in Committee, analysts in the DWP and HMRC have been doing some further work. Even allowing for the additional revenue flow into the National Insurance Fund and assuming that only 15 per cent of those eligible take up the option to pay extra class 3 contributions, we estimate that the cost of allowing people reaching state pension age from 2008 to 2020—the period of the exercise—to pay for up to six years falling between 1975 and 2010 will be around £260 million a year in 2020, gradually reducing thereafter. If noble Lords wish, I can run through that in more detail. However, on the basis of that analysis, the bulk of the cost—around £230 million in 2020, which is close to a quarter of a billion pounds—would appear to be on pensions for people living outside the UK.

At this stage, we cannot say for sure what proportion of those people would be covered by EC law; therefore, we cannot, with certainty, determine to what extent, if any, the costs could be constrained. Without any

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restriction, we would be spending something approaching a quarter of a billion pounds in 2020 on overseas pensioners to provide a remedy for—on the 15 per cent take-up assumption—fewer than 10,000 UK pensioners each year. By any yardstick, that would be completely disproportionate. Even more disproportionately, if all those eligible overseas were to take up the option, it would mean a cost of about £1.5 billion in 2020. There are significant cost issues associated. If noble Lords want, I am happy to go through the methodology by which those estimates were made.

Noble Lords: Oh!

Lord McKenzie of Luton: My Lords, I understand the reaction. Serious work has been done and continues to be done on that. It is a very important matter.

Until we have a better understanding of the potential effects, we cannot judge the viability of this option. I make no bones of the fact that this further analysis will be far from straightforward, as we do not necessarily know where these people are living now and where they were living in the past.

I appreciate that this is not what my noble friend was hoping for. However, I assure her that we have given her proposal serious and detailed consideration, and will continue to do so while looking at alternative options. As she is aware, any necessary changes to the time limits for paying class 3 contributions could be made by secondary legislation. However, I stress that the amendment would limit to nine the number of years for which people could pay voluntary contributions, and this is surely not the desired outcome. Technically, the amendment as drafted is defective.

I shall emphasise the dilemma here. We sympathise with the objective, and further work will be done to see whether we can contain the sort of costs I have been talking about. We must be extremely careful about opening up a channel to genuinely help a range of women who have missed out in the past and, by doing so, allowing in an armada, which would have huge public expenditure costs, a lot of it possibly for people resident overseas—resources we could deploy in a variety of other, more beneficial ways. It is a real dilemma.

Under the present provisions, people who have been working and have paid national insurance contributions for three years generally can still for the rest of their lives pay class 3 contributions and accrue entitlement to the UK basic state pension. The 25 per cent de minimis rule has been inhibiting some of that.

Lord Forsyth of Drumlean: My Lords, I apologise for interrupting the Minister. Are those living abroad whom he refers to, who would benefit from the provision and add to the cost, British people who have gone to live in an EU country? Who are we talking about? Presumably they have paid their tax and so on.



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Lord McKenzie of Luton: My Lords, they are both. They do not have to be British citizens who have moved abroad. The rule is that if you have worked here and have made three years’ national insurance contributions, you are entitled to pay class 3 contributions and gain further entitlement to a basic state pension. In the past, the take-up of that has been limited because of the 25 per cent de minimis rule; you have to get a quarter of your working life in terms of credits before you get anything. There was obviously a disincentive there. In 2010 the de minimis rule goes and only 30 qualifying years will be involved. I suggest that that changes the picture, and there are some real concerns. I am not saying that we cannot find a way through it, but work needs to be done to ensure that we can; otherwise, substantial public expenditure will be involved.


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