My Lords, there are three amendments that are closely related, of which this is the first. I welcome the fact that there seems to be general agreement in principle that what I will loosely call “derived entitlement”, established in the 1940s, is past its sell-by date and has no place in a modern state pension system.
I apologise for the fact that I am going to speak at some length, but it is important that I lay out the Government’s argument for removing derived entitlement by reference to the criteria for judging single tier as laid out by the noble Baroness, Lady Sherlock, at Second Reading: that is to say fairness, simplicity, sustainability, the provision of a decent standard of living for all and, at the same time, the encouragement of private saving through clarity of outcome.
First, we believe that fairness means ensuring an adequate state pension for people who have contributed to the system. That is why we are recycling the savings from aspects of the current system being abolished, including derived entitlement, to give a boost to individuals who have historically been excluded from additional state pension, such as carers, the self-employed and the low-paid. Indeed, around 650,000 women who reach state pension age in the first 10 years of single tier will receive an average of £8 per week more in state pension due to the single-tier valuation.
Sustainability and affordability are also key qualities that the Opposition have made it clear that they are looking for. Let me be absolutely clear that we are ending derived entitlement from principle and not to save costs. However, as we have been asked a number of times about this, and as affordability is one of the criteria of interest to the Opposition in judging single tier, I shall respond to the question raised by the noble Baroness, Lady Sherlock, and deal with the cost issue.
Our analysis shows that to continue running the basic pension derived entitlement provisions for people reaching state pension age up to 2030-31, the cohorts targeted in these amendments, would cost around £200 million per annum in the early 2030s, and those are just the costs for Great Britain. We do not think that it would be possible to restrict transitional protection to those ordinarily resident in the UK, as the noble Baroness, Lady Hollis, hoped. While it is difficult to quantify the cost for those overseas, we think it likely that it would cost about the same amount again as in the UK, meaning transitional protection for the first 15 cohorts could have further costs peaking at another £200 million a year.