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Lord Higgins: I have listened with care to what the Minister has said. However, if I understand it correctly, she has related the amendment entirely to stage 1 of the second state pension. She has not related it at all to stage 2, when it ceases to become earnings related, and much of the argument that she has advanced becomes irrelevant. I may have failed to understand the point, but that seems to be the case.
The noble Baroness referred to the second state pension as a contributory benefit. We have often discussed what that expression means. The noble Baroness must, surely, distinguish between a contributory benefit and a deemed contributory benefit. I am not sure how to word it. The Government have already gone down that road. However, it is still far from clear whether, even if the Government deem the contribution to be made, it will cost them any money because at the end of the day it is merely offset by the minimum income guarantee; or whether carers, who are to receive the marvellous help (as everybody describes it) from SERPS and so on, will benefit.
The noble Baroness put forward a number of figures to show the proportion of people who would fall outside the minimum income guarantee. I do not have the exact figures before me. I believe that reference was made to one in five. At all events, the Minister argued that there would be far fewer people subject to the minimum income guarantee. As to stage 2 of the second state pension, that depends on what assumptions are made about prices and earnings respectively. I am not clear what assumptions the Minister makes, and perhaps she can tell the Committee.
Baroness Hollis of Heigham: I believe that that would entail another half-hour speech, which I am not sure the Committee would welcome. There may be some misunderstanding about what is entailed by stage 2. Under stage 1 anyone between the lower earnings limit and £9,500 will receive a state second pension as though he was earning £9,500. That is the low earnings boost. Although it is tapered, it continues for those between £9,500 and about £21,000. Therefore, there is still an incentive to remain within the scheme. We expect that under stage 2 there will be a flat rate beyond the £9,500 level which will not be earnings-related. Therefore, there will be greater attraction to move into a stakeholder pension or alternative vehicles for pension provision. It will not affect those who are under the £9,500 level. The basic thrust of the proposal, which is to use the state second pension at both stages 1 and 2 to address pensioner poverty for those with earnings of less than £9,500, remains unchanged. The change is related to what happens to those over £9,500. I hope that the noble Lord is content with that explanation.
As to the noble Lord's second point about the deemed contributory benefit, frankly, when we began to construct the contours of a pension arrangement of this kind the first option was to address only those in waged work. I recognise the work of my noble friend Lady Pitkeathley and that of the Carers National Association. The Government were persuaded that they should pay ICA precisely because they recognised that it was work, albeit unwaged. That is recognised by a substitute income. We believe that it is right, decent and proper to regard the receipt of ICA as a deemed payment, in the same way that disabled people with a
My noble friend's amendment proposes in effect that everybody should get the state second pension, because a person gets it if he is also unemployed. In a rather subtle way my noble friend seeks to ensure that everybody has a basic state pension which is at least as generous as the basic state pension and the state second pension put together. At that point the connection between earnings, the world of work and the earnings-related principle goes out of the window. Perhaps that is what my noble friend seeks to establish, but that is not a principle which features in the Government's policy. We believe that the state second pension is for those who have been in the labour market but whose earnings are so low that, if they had the older style SERPS pension, their pension would still keep them in poverty for far too long. As a result of our changes, under SERPS someone who earned £6,500 would have received about £12 or £15, whereas under our proposals he will receive £54. I hope that as a result my noble friend will not pursue her amendment; otherwise, she will destroy, possibly quite deliberately, the whole purpose and thrust of the state second pension which has been so widely welcomed outside.
Lord Higgins: The noble Baroness still has not answered the point related to stage 2 of the state second pension. At that point it becomes flat rate. We do not want to perpetuate the argument. Perhaps the noble Baroness will be kind enough to drop me a line about the assumptions on which she bases her statement that that will be of benefit to carers because at the end of the day they will get more than the minimum income guarantee.
Baroness Hollis of Heigham: Basically, for every year of caring a carer will receive the equivalent of £1 of basic state second pension. I do not understand the noble Lord's bafflement. Up to £9,500 the position remains unchanged between stages 1 and 2. The flat rate element after stage 2 applies to those who would otherwise have received a state second pension if they had earnings of between £9,500 and £21,000 under stage 1, which is earnings- related. We seek to make it a flat rate for that group so that they are encouraged into stakeholder and funded schemes.
Baroness Turner of Camden: I thank my noble friend for the very extensive explanation that she gives of government policy. I am not entirely persuaded by my noble friend's response. The noble Lord, Lord Higgins, has referred to some of the points that I intended to raise. When moving the amendment I said I believed that the real purpose of the state second pension was as much to fill the gap left by the erosion of the basic state pension as to provide a replacement for SERPS. That remains my belief. My noble friend refers to the basic pension as the basic building block.
Baroness Turner of Camden: But the superstructure is intended eventually not to be earnings-related but to be a flat rate. Having read fairly extensively the government papers on this matter, the idea of having a flat rate appears to be that that will persuade most people to look to the private market; in other words, the present 60:40 relationship between public and private provision will be reversed. In 10, 15 or 20 years the majority of the population will not look to public provision but to occupational or private pensions or stakeholder pensions; in other words, they will have recourse to the market. Therefore, I suggest that to credit people who are unemployed in the way proposed in the amendment is quite reasonable. There will not be a basic building block worth mentioning. People will already be credited in relation to the basic building block as it exists now. Since the second state pension and the basic building block are likely to develop eventually into low-grade public provision, I propose that the crediting should be against future public provision as far as concerns the unemployed. I shall not press the amendment this evening, but I am not terribly happy with the Government's response. I beg leave to withdraw the amendment.
If one has a provision for crediting-in carers it is only sensible to ensure that it is consistent throughout the whole area of pensions that we have been studying. Therefore, the purpose of the amendment is to provide the same criteria for crediting-in as exist in the basic state pension.
I should have thought that the Government would have been only too eager to do that; otherwise there is a grave disadvantage as between the treatment of carers in the Government's new proposals and those under the basic state pension. I refer, of course, to the definition of a "carer" as someone who is in charge of a child under six. That is whittling it down somewhat, is it not? Under the provisions of the previous Labour government, carers were defined as those looking after a child under 16.
Are the Government telling us that we shall be less humane to carers than we have been? When we discuss the great advantages of the government scheme over SERPS, for instance, we tend to forget that the Government are measuring themselves not against the original SERPS but the Thatcherite reduction of it. Under the original SERPS, the 20 best earning years was one of the greatest lifelines which could be thrown to carers and the disabled. We shall deal with the disabled a little more in the next group.
I urge the Committee to share the view of my noble friend Lady Turner and myself, and I am sure of other noble friends, that the crediting-in of carers should not be limited to those in charge of a child under six years, with the assumption that after that no real caring is needed for an older child who is probably going through some of the stormiest developments in his whole life.