Pensions Bill

My Lords, I support the amendment. We on the Pensions Commission had two concerns about the state pension system as against the private pension system. The first was to make sure that as many people as possible ended up with full basic state pensions in order to minimise the impact of means-testing, which would be a disincentive to the improvements in private savings that we have to achieve. We were also very aware that we needed to increase dramatically the fairness of the state pension system to women. The Pensions Commission debated two different ways to proceed. One was to suggest that the Government should head towards a residence-based form of basic state pension, or a citizen’s pension as some people call it, where everybody would receive a basic state pension simply by having been resident in the country for a certain number of years. That would have the advantage of being the only way to ensure that everybody—in particular, all women—had a full basic state pension. It is of course more expensive than improving the contributory system. The other way to proceed would be to improve the effectiveness of the contributory system by making it easier for women in particular to accrue years of rights through carer responsibilities rather than through paid work. The Pensions Commission came down in principle in favour of a residence-based approach, though we always understood the arguments of those who were in favour of improvements in the contributory system. We found in focus groups that many people are attracted to the contributory system; they feel that people ought to receive something for a contribution. That principle has a merit even separate from the points made by the noble Lord, Lord Forsyth, about the arbitrary differences between national insurance and tax. Therefore, when the Government came forward with their proposals, which were an improvement to the contributory system but slightly different from what we had proposed, I could strongly support them. The way forward they chose—that is, a reduction in the qualifying years to 30—was an imaginative way of making sure that the vast majority of people would achieve a full basic state pension looking forward. However, that still leaves two clear problems. First, a small, but still important, minority of women, often on low incomes, will not achieve a full basic state pension and will therefore be dependent on means-tested benefits in retirement. That is true even looking forward. We are getting the full basic state pension forecast for women for up to something like 90 per cent, but we are still short of the 97 per cent or 98 per cent, at which point you could be confident that the only people who were not getting it were, as it were, rich people who had chosen not to work. That is the flipside the contributory system; you would always accept a few percentage points, but as long as it stands at 90 per cent, we know that some of the 10 per cent who are not there will not be people who have chosen not to work but people who have simply failed through their life—through having earnings lower than the lower earnings limits or falling through the rules on carer responsibilities—to get the accrual of rights that they ought. That is one problem. The other problem is the one of the cliff edge. The way in which the Government propose to proceed is that, looking forward from 2010, people will receive basic state pensions on a 30-year rule thereafter, but it will not affect those people who retire before then. This is an imaginative way of trying somewhat to mitigate the problem of the cliff edge and trying significantly to deal with the remaining minority of women who will not get to the full basic state pension, looking forward. To my mind, therefore, this measure is the final thing required to produce a contributory system that would work, rather than a residency-based system. I urge it on the Government as the final step that they must make to be able to say that we do not have to move towards a residency-based system but that we have a fully updated and effective version of the contributory system.