Pensions Bill

moved Amendment No. 4: 4: Clause 1, page 2, line 32, at end insert— ““(5) The contributor may make voluntary contributions at any time before drawing a Category A or Category B retirement pension and for any period of their working life up to a total of9 years.”” The noble Baroness said: Amendment No. 4 would allow someone to acquire nine additional years under class 3 contributions. We have a contributory system; I do not want to make a Second Reading speech about keeping people out, but, by reducing to 30 the contributory years for BSP, extending carers’ credit and lengthening the working life so that those contributions are more easily acquired for over those 65, the Bill will help to extend the reach and coverage of contributions. I know that everyone in this House is delighted about that. However, the Bill leaves us with two broad problems, both of which have been touched on. The first is the cliff edge. A woman who retires in February 2010 needs 39 years’ contributions. If she retires inMay 2010, she needs 30. A month, a week—even a day—will cost the unlucky lady nine/thirty-ninths’ worth of her basic state pension for the rest of her life. It is even possible, to use a slightly exaggerated example, to have twins born either side of that hour by10 minutes; one would get the basic state pension after 30 years, while it would take 39 years for the other to do so. I accept the arguments my noble friend made earlier about transitional arrangements being awkward and complex. That is a valid administrative point. I also accept the point he made to the noble Lord, Lord Skelmersdale, that phasing in the changes means delay. Therefore, the Government’s willingness to go for 30 years at 2010 seems decent and humane. I also understand why the Government felt unable to make such changes retrospective—the complexity of record-keeping is considerable. But such an abrupt cliff edge will none the less be perceived as deeply unfair, even more than the reduced married women’s stamp which has for many years been regarded as unfair to women. That problem is there, and the ability to purchase nine years would allow someone, if they chose, to avoid that cliff edge. They could make good the shortfall between 30 and 39 by purchasing another nine years. The amendment would address the cliff-edge problem responsibly, but I accept the Minister’s arguments about the more technical difficulties of approaching it in another way. Admirable though the Bill is in its inclusiveness, excluded groups will remain, even under the more generous provision. As the Government admit on their most optimistic figures, between 5 and 10 per cent of people will be without a full BSP some20 years down the line. Five to 10 per cent of11 million people is really quite a lot. Let us think of today’s amendments. The previous amendment would have allowed people who have passed retirement age but who are still in work to continue to pay national insurance contributions. The amendment to which I shall speak subsequently would bring grandparents who are effectively full-time carers into the system. Amendment No. 31, to which the noble Lord, Lord Oakeshott, and the noble Baroness, Lady Thomas, will speak, would allow people to run multiple jobs below the lower earnings limit. All those amendments are necessary because the contributory principle cannot cover everyone. If it did, it would be a citizen’s pension. What do we do when we have pockets of excluded groups? My preference is built into AmendmentNo. 33, which would scrap the outdated and unfair principle of a contributory system and, instead, build an inclusive, residency-based pension. We will argue that in due course. A second option is to go down the track of seeking individually tailored changes for a series of excluded groups—a particular change for those with several jobs below the LEL, a particular change perhaps for grandparents and a particular change for those seeking to work past retirement age. However, I accept that that brings more tweaking, more complexity and more difficulty to the system. However, there is a third way, which is what this amendment proposes; that is, a flexible, generic response, allowing people—they will mainly be women—to make good the shortfall by buying up to nine additional years. As I have said, nine years will address the cliff-edge effect fairly; it will make good in full or in part, depending on how many years the person concerned has already accrued, those years during which they made a socially valid contribution to society but which are not tracked for NI purposes. My noble friend the Minister offered two responses to the cliff-edge problem; I am offering a third way. Such an approach has five advantages. I have mentioned two of them: it addresses the cliff-edge problem and it would help to include those groups—10,000 people here, 20,000 people there—who will remain excluded even under the far greater generosity of this system. In addition, there are some three other advantages in being able to buy nine extra years. The first is that it is eminently workable. The principle of buying added years is already well established. For example, if a student wishes to buy three added years within six years of their missing a year, they can do it now. If one is temporarily working abroad, one can buy missing years. I do not think that I am divulging any secrets when I say that both my noble friend and I have had family circumstances in which we have considered this path. In other words, the path of buying additional years within six years is already available for those who know about it—the well-educated, those who think that they can afford it and the relatively well-heeled. In 2004, which is the latest year for which statistics seem to be available, some 250,000 people bought additional years, of whom 144,000 were women and 107,000 were men, mostly in their fifties, paying some £161 million to the Exchequer for the rights. The practice of departing from the within-six-years rule, which is what the amendment seeks by allowing one to buy nine years for any missing years and not merely those six years, has already been established by government. Due to the failure of the NIRS computer, which failed to send out deficiency notices telling people of their shortfalls between 1997 and 2001, the Government have allowed people to make good that deficiency right up to 2009-10, which is another 12 years. When it suits government, we do not have to be constrained by within-six-years; we can have 12 years, because the computer has fumbled. That was a decent, sensible and proper response, and it shows that principle is eminently workable. We already allow people to purchase extra years and nudge them with deficiency notices. If appropriate, we extend those extra six years to 12. This amendment would add the flexibility that those extra nine years could be purchased at any time and not within the usual six-to-twelve year framework. Many women with jigsaw lives, entering or leaving full-time, part-time or temporary work, caring for children, partners or elderly family members, are unable to predict from one year to the next what the picture on the jigsaw box will eventually look like and whether any pieces will be missing. They may have missing years scattered across a full lifetime. At the moment, only if those missing years were within the last six years can they make that good. Some will know, but many will not, whether they have the full complement of the NI years—30—until the month when they come to retire, and whether they have a full record and what if any years as a result they may want to buy. The amendment would give us additional flexibility but it would also mean that if people—mainly women—know that they can make good such a deficiency and buy a full basic state pension, it takes some of the risk out of saving. A second small pension becomes worth having because, with a full BSP, they will not face a pound-for-pound, 100 per cent deduction with regard to the pension credit guarantee, for example. It will help to establish a secure platform for their savings because there will be a predictable floor in the BSP, therefore encouraging more women to save and, I hope, abating some of their poverty in older age. What are the costs? We are not talking about a freebie here but a gentle extension of current rules on buying additional years. To buy a class 3 voluntary contribution, which buys only BSP—it does not buy S2P or IP or anything like that—costs on average about £350 or £3,000 to buy nine years’ worth. If purchased at 60 with average life expectancy, it is obviously extremely good value. If, as is quite possible, the woman has insufficient savings—and one might then look to Saga or Help the Aged in this regard—a commercial loan could be arranged. At7 per cent paid over five years, it would cost her£14 per week to pay off the loan, to receive a pension even then worth some £20 a week and, five years on, she would receive the full pension of an additional £20 a week, which those extra nine years would have bought. Even if she had to go down the route of taking out a commercial loan, it would still be worth it each and ever year—particularly after five years of the loan being repaid. After 2010 a purchase of up to nine years on the 30 would produce even more attractive returns. How many people might we help? Of women reaching state retirement age in 2004, only 10 per cent had 39 or more years of national insurance. A further 25 per cent had a shortfall of up to nine years—so this amendment would fully cover them—and a further 20 per cent had between 25 to 30 years’ worth of contributions. Again, that is a valuable if not complete addition to a full BSP. Below that, if they were married, it would probably not sufficiently improve their position over the dependent wife’s pension. On the cost to the Treasury, the figures are imprecise. I got some figures this morning from the department. There will possibly be a modest profit in the early years to the department when contributions are being collected and a modest cost in later years when payments are being made, dependent on life expectancy. Given that already we sell 250,000 people years now, mostly to the better educated or the better off, I very much hope that poorer women with untidier lives and at greater risk should not have a similar protection. If money is the argument against making the amendment, that could be rectified almost certainly by a modest increase in the cost of class 3 contributions, so it is more financially viable—and I shall try to do the sums. The principle is that if the Government and the House if necessary supported an amendment such as this, it would overcome the problem of the cliff edge and the problem that we identify today in a series of ad hoc amendments about excluded groups. If we are to build on a precedent that we already have and extend it to those most in need, poorer women with inadequate records need a sure base if they continue to save. I hope that my noble friend will feel sympathetic to the amendment, which fits the spirit of the Government’s White Paper and seeks to ensure that even more people, especially women, come within its reach. I beg to move.