Clause 7
Pensions Bill
11:45 am
Andrew Selous (Shadow Minister, Work & Pensions; South West Bedfordshire, Conservative)
I, too, welcome you to the Chair, Mr. Taylor.
Clause 7 removes the link between the lower earnings limit and the basic pension. The lower earnings limit is £84 a week at present, which equates to an annual qualifying earnings factor, as pension legislation calls it, of £4,368. The effect of the clause will be that the lower earnings limit will not automatically increase in line with earnings in the future. Instead, any future increase in the lower earnings limit will be at the Treasury’s discretion; that will happen when the basic state pension is linked to earnings.
I have huge sympathy with the intent of new clause 18, which identifies an issue that was raised on Second Reading by at least three Labour Members—the hon. Members for Colne Valley (Kali Mountford), for Amber Valley (Judy Mallaber) and for Northampton, North, and I understand precisely what it would do. It deals with people who have several part-time jobs, each of which on its own is below the lower earnings limit on which national insurance contributions have to be paid in order to accrue a pension at a later date. However, when those jobs are taken together, the total gross earnings come above the lower earnings limit.
To put some flesh on the bones, typically—though not exclusively—it tends to be women who are in those circumstances. The hon. Member for Amber Valley gave the example on Second Reading of someone who may work as a dinner lady at lunchtime and in a corner shop in the evening.
A helpful briefing provided by Help the Aged estimated that about 600,000 women are not accruing pension rights because their earnings are below the lower earnings limit. About 50,000 of those women have more than one job, so they could benefit from the proposal.
Although I said that I understand the purpose behind the new clause, and have much sympathy with it, I have a question about its practical impact. On Second Reading, responding to an intervention by the hon. Member for Colne Valley, the Secretary of State said that it would be
“extremely difficult from an administrative point of view.”—[Official Report, 16 January 2007; Vol. 455, c. 662.]
My question is how new clause 18 would work practically with the payrolls run by employers on a computer, or manually if they are smaller employers. There is also the issue of the cost to employers if an employee for whom they do not pay employer’s contributions goes above the primary threshold, which is £97 a week, at which point the employer has to pay 12.8 per cent. Employer’s national insurance contributions, and the employee has to pay 11 per cent. One could imagine a situation in which some women would be priced out of a job, as employers might choose not to offer them work because of the cost.
Will the Minister comment on how class 3 voluntary national insurance contributions could be paid by employees who are in work and earning below the lower earnings limit, to enable them to accrue rights towards the basic state pension? Class 3 contributions can be paid by anyone over the age of 16 to enable them to qualify for the basic state pension. The rate is currently £7.55 a week. As the employees concerned would not be paying contributions otherwise, it would not be an additional payment. If that would be the right way to go, how can the Government bring the option of paying class 3 contributions to a wider audience?
I am not asking the Department to spend more on its promotional material, but it could flag up the option of paying class 3 contributions in the advertising that it already puts out. In the course of communications between employers and employees, such as payslips or P60s, it would be possible to alert everyone who earns below the lower earnings limit to that option. I should be grateful if the Minister would comment on that suggestion. I know that he understands the problem that is addressed by proposed new clause 18.