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Pensions Bill

I thank the noble Baroness, Lady Thomas, for giving us the chance to go over an old conundrum. I think that most speakers have anticipated the government response on this, particularly the noble Lord, Lord Skelmersdale, whose analysis I agreed with. This is about the aggregation of low earnings from multiple part-time jobs so that people earning below the lower earnings limit in each job can accrue state pension if their total earnings are above that level. The Pensions Commission and the Government have both considered this, which in practice is an issue that largely impacts on women. There is no lack of will on the Government’s part to address the problem of unequal pension outcomes for women with our pension reforms. Many of the state pension measures in the Bill have been driven largely by the Government’s commitment to reshape state pensions for women, giving fairer outcomes especially for women who combine paid work with family and caring responsibilities. On this issue, I believe that there are other solutions, both now and post reform, and the noble Baroness anticipated them. The new 30-year single contribution condition and credits for carers will by themselves change the face of the state pension landscape. The reforms in the Bill are a complete package to benefit people with broken national insurance records, including those who have spent a period with earnings below the lower earnings limit. Clearly there are times when some people, particularly women, combine two jobs, both below the lower earnings limit. However, that is often because of particular circumstances such as looking after young children or someone who is sick. We believe that people rarely do that for substantial portions of their working life. Our other reforms, especially the 30-year contribution test and carer’s credits, will in any case benefit many who have a particular need for these types of flexible work patterns. People whose earnings are below the lower earnings limit do not necessarily fall through the system; they may be building a state pension from home responsibilities protection or national insurance credits, from carer’s credits or working tax credits. It is right to say that the analysis of the Labour Force Survey indicates that, at any one time, about 15,000 women are earning more than the lower earnings limit in total from two or more jobs which individually pay less than that amount and are not accruing a basic state pension. We do not believe that these people necessarily stay in those circumstances throughout their working life. I was interested in the example touched on by my noble friend Lady Hollis. If I understood it, she was talking about a number of jobs that were in sequence, not jobs that were combined at the same time. We believe that only one in 1,000 women of working age is in this group who are currently earning in total less than the lower earnings limit from two or more jobs. The Pensions Commission concluded that it is difficult to fix the aggregation issue within the confines of the existing system or without significantly increasing costs for employers. We have looked closely at the issue of aggregation and we agree with the Pensions Commission. There is no straightforward mechanism to allow earnings from multiple employers to be aggregated. To do so would fail the tests of simplicity and affordability. I know that supporters of the aggregation argument have drawn a comparison with arrangements for working tax credits—my noble friend did so a moment ago—where earnings from two or more low-paid part-time jobs are aggregated for tax credit purposes, but the two systems work in very different ways. Tax credits entitlement is calculated on an annual basis, initially on income in the last complete tax year before the claim, with the award being finalised after the end of the tax year in which the claim is made. The national insurance contributions scheme, by contrast, works on a set of clearly defined rules with liability arising in each pay period rather than on an annual basis. This is very much a real time issue. If the scheme is amended to suit particular groups it would quickly become unworkable and extremely expensive to administer, failing the test of simplicity and affordability. We would not want a system to aggregate earnings for benefit purposes but which would exempt people from paying national insurance contributions on those aggregated earnings. This would clearly fail the test of fairness. One of the key principles of national insurance is that both the employee and their employer contribute towards the National Insurance Fund. If the employee alone were to contribute, then the amount of payment needed might be prohibitive. The employer contribution helps fund benefit entitlements in both the shorter and longer terms. If earnings were aggregated, it is not immediately obvious how the employer’s contribution could be easily calculated. The employer’s contribution would be variable—a percentage, based on an employee’s earnings. Reporting, collecting and calculating it would impose significant administrative burdens on the employer and increase complexity within the system. These burdens would fall particularly hard on small employers.