My Lords, I, too, thank the Minister for his explanation of these provisions. I take this opportunity to thank his Bill team on behalf of my noble friends and myself for the briefing that it provided to explain some of the issues that have been raised. When the Chancellor announced the scheme in the Autumn Statement there was much excitement among financial journalists, I recollect. It was hailed as a great deal for consumers by commentators, many of whom missed crucial words in the small print that it would be at a broadly actuarial fair rate. My understanding—and the Minister's explanation confirmed this—is that the price will vary according to age at purchase, much as an annuity would, and that it would be gender-neutral.
The Minister has effectively confirmed that the only factor that will be taken into account in pricing a class 3A contribution will be age. No account will be taken of any regional or occupational differences in life expectancy, which are issues that will engage the Committee later in this evening’s debate. As that is not going to be the case, have the Government done any work on the likely distributional effects of this scheme? If this scheme is broadly actuarially fair in pricing and the proposal is that over time the policy will be broadly cost-neutral as the briefing paper says, if some people are getting a good deal others must be losing out. Those who lose out will be those with shorter than average lives, and there is a clear socioeconomic correlation there.
There is much that we do not know about the scheme and the Minister was absolutely candid about that. In fact, there is much that the Government do not know about the scheme because they have not worked it out. We know, however, that it will start in October 2015 and that the Government are minded to run it for 18 months or two years only. I digress here to point out to the Minister the irony of telling us in one short unqualified sentence that the affirmative procedure will be used for the regulations for this in a scheme that is due to start in October 2015 when he spent a significant amount of his last contribution to the Committee explaining that it would be very difficult to find time for affirmative regulations in this Parliament. That irony was not lost on the rest of us. He may find that fact being played back to him at some time in the not-too-distant future.
We do not know the range of prices, but the illustrative price given in the briefing paper sent to Peers showed a charmingly named couple, Mr and Mrs Average, who will be 65 in 2015. They could be expected to live for another 24 years. It suggests that they would have to find £1,248 to acquire another one pound a week. That would be a better deal for them than going to the market, said the briefing, because the extra pension that it would buy would be uprated by CPI and
without charges, and would be inheritable under the additional state pension rules. I am not sure whether that was meant to be the price for them to receive an extra £1 per week each because it seems in the polling reports that the prices tested were between £300 and £800 to buy an extra £1 per week, depending on age. I make this point because the value of polling is of course dependent on the nature of the questions asked. If the questions that were asked in the polling were on an expectation that one unit per week would cost between £300 and £800, and in fact it is likely to cost £1,248 to acquire, that polling may need to be redone as it will be of limited value.
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The suggestion is that up to something of the order of £25 per week might be the maximum additional pension that could be bought, so at £1,248 per £1 per week of pension for the two of them, that would cost £31,200. Can the Minister tell the Committee what proportion of pensioners have in excess of £31,200 in savings? As I explained at the briefing, it would be helpful to have at least one fixed point of reference to have a debate around because it is quite difficult to get a handle on just how valuable this is as a boost, unless we have some sense of how attractive it will be to Mr and Mrs Average.
Based on the polling if the price were £800 to buy an extra £1 per week, it would cost £20,000 to buy £25 per week. However, only one in five of the small proportion who said that they would be interested in buying at this price have more than £20,000 in savings, so even if they bought they could not buy the maximum. Indeed, three in five of them have less than £10,000 in savings and investments in total. Of those who are fairly interested, just over half have £20,000.
Then there are the numbers. The briefing suggests that 7 million pensioners have enough savings to enable them to buy class 3A contributions. Can the Minister clarify this? Does that mean enough savings in total to buy one unit of class 3A contributions or 25 units, or is it somewhere in between—and if so, where in between is it? The briefing also says that the polling suggests that “a small number” of those 7 million would take it up, as the Minister himself said. Just how small is that number? He gave us some idea but how specific can he be?
This is all highly relevant to the costing of the schemes. For the reasons given by the Minister, there was no point in me looking across the Autumn Statement or the scorecard for any reference to this policy. It is not there because there is no figure to be put. I understand that but given that this provision is coming in during the next financial year, when and how will Parliament have the opportunity to scrutinise the detail? We know that it will be by affirmative resolution and we are pleased about that, for obvious reasons after all the arguments we made about why the other set of regulations should similarly be by affirmative resolution, but can the noble Lord give us some indication as to when he thinks the Government will be able to secure the valuable parliamentary time to have that debate? If the scheme is to be broadly cost-neutral over time, it clearly will not be in the short term. Indeed, as my
noble friends suggested, this could be viewed as a way of bringing in revenue in the short term, which the state will then have to pay back in the next 20 years-plus.
The polling suggests that, overall, 14% to 15% of people are either very or fairly interested in buying; mostly, they are fairly interested. Let us average everything for Mr and Mrs Average. Let us suppose that 500,000 or 7% of the 7 million people who the Minister believes will have enough savings decide to buy class 3A contributions, that on average they buy about £13 a week extra, which is just over half the suggested maximum, and let us choose the middle price of £600 for an extra £1. My estimate, which I accept is very rough, is that this will bring in less than £4 billion in revenue. Whatever the figure, how will this be scored given that it will have to be paid back again by the state in pension payments in the decades ahead? Presumably, this also pushes those billions of pounds into the DWP AME costs over the years ahead. I do not know whether the Minister has the answer to this but how does that interact with the concept of a welfare cap? Is this to be added to the cap or within the cap?