National Insurance Contributions Bill
Orders of the Day
5:42 pm

Photo of Jane Kennedy

Jane Kennedy (Financial Secretary, HM Treasury; Liverpool, Wavertree, Labour)

It is true that we are bringing forward the state second pension upper accruals point, which raises £0.3 billion from higher rate taxpayer contracted-out rebates. However, by raising the personal allowances for pensioners by £1,180, we are taking the allowances by 2011 to around £9,770 for anyone over 65, and with a further increase, to £10,000 for anyone over 75. That costs the Exchequer £0.9 billion. That is why I say that I do not recognise the description offered by either hon. Gentleman.

The increases which I have described as the anomalous gains in their pensions that higher earners might have made were not the intention of the personal tax package that was debated at length in this place and the other place earlier this year, and they would have been counter to our objectives of concentrating resources on providing a more generous flat rate state pension for all.

A further effect would have been a larger than expected increase in the band of earnings on which contracted-out rebates are paid. This is because the rebate reflects the state second pension forgone, and is again paid on earnings between the lower and upper earnings limits. Again, this was never intended to be the effect of the personal tax package.

By introducing the upper accruals point in 2009 rather than 2012, the Bill prevents most of those anomalous gains, as I tried to explain in our exchanges, as well as returning the timetable for the removal of the earnings-related state second pension to that recommended by the Pensions Commission. The new point—the upper accruals point—will be introduced at the level of the upper earnings limit in 2008-09, which is expected, as I said, to be about £770 per week.

From that date, the upper accruals point will replace the upper earnings limit as the threshold for the calculation of both state second pension and contracted-out rebates. It is proposed that it will be frozen in cash terms at its introductory level, so that the band of earnings on which the current earnings-related state second pension and contracted-out rebates are based will reduce year on year.

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