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Social Security (Contributions) (Re-rating) Order 2008

I thank noble Lords for their contributions. I shall start with the National Insurance Fund, which we touched on in our last debate. My noble friend Lord Jones is right. Where we are is a product of a successful economy, with many more people in employment and fewer people claiming unemployment benefit. Of course that will have an impact on the National Insurance Fund. The Government Actuary is independent. He is responsible for advising on whether the changes to social security are affordable. The noble Lord encourages me to go to the National Pensioners Convention in Blackpool. I am pretty certain that I have a prior engagement, although I am not quite sure when it is. I did turn up to a regional event recently. We tucked into the sandwiches while they marched on the town hall. It was an interesting experience. The noble Lord, Lord Skelmersdale, raised the issue of class 3 contributions. The challenge we faced in trying to accommodate the thrust of the amendment tabled by my noble friend Lady Hollis was to see that it was appropriately targeted. At the tail end of the Pensions Bill last year we set out how we would do that, specifying clearly the criteria of fairness, affordability and simplicity. I made it clear in your Lordships’ House, and my honourable friend Mike O’Brien made it clear in the other place, that there was no guarantee. We would use our best endeavours to achieve what my noble friend was seeking, but it could not be guaranteed. A lot of work was done in considering various options. At the end of the day, we come back to the issue of trying to ensure that something is properly targeted. That component is missing from this. It is potentially hugely expensive. It depends what assumptions you make about take-up, and we circulated some numbers in response to some Parliamentary Questions from my noble friend showing a range of costs and the range of people who might benefit. The other issue is that, whichever way we analyse it, it is much more likely that the people who will take advantage of the extra buy-back will be those who are better able to afford it. It will do nothing to help people who have paid the reduced rate stamp, and it will do nothing to help people who are heading for pension credit—the very poorest pensioners. It simply will not deliver what we want. It will help only a relatively small percentage of the number of people who might be retiring. The number of people reaching state pension age in 2008 will be something like 700,000. Some 390,000 will be women, and something like 250,000 will have less than a full basic state pension on their own record. My noble friend’s proposal, at the level at which she suggested that there might be take-up, would at best cover only a fraction of the number of people who do not get a full basic state pension. I stress that, in our view, it is not well targeted. My noble friend talked about the changes to the upper earnings level or upper profits level. Of course, that was part of an overall package. Given the hour, I will not go through all the components of it, but you cannot pick this out and say that it is an effective tax increase and ignore all the other things on which there was extra government spending. That package had a price tag of something like £2.2 billion, so, overall, there was a relaxation of the fiscal system arising from that. I look forward to welcoming the noble Baroness, Lady Noakes, back to the House. I am sure that I will be participating in some quite fierce debates with her and that things will be as lively as ever on the National Insurance Contributions Bill. We will have the chance to get into these things in more details. I will answer the specific question that the noble Lord raised. Somebody retiring on 1 June 2011 with 30 years’ contribution would get a full basic state pension; somebody retiring on 4 April 2010 with 30 years would not. It depends on their HRP—home responsibilities protection—which could reduce the number of years, so one cannot generalise. However, the number of qualifying years needed otherwise is 39 for a woman and 44 for a man. That is why the improvements that we made to the system last year will transform the pensions outcome for women. That is the right way to address what has been a long-standing grievance and an inequity in the system that has persisted for too long.