House of Commons - Explanatory Note
Child Support, Pensions And Social Security Bill - continued          House of Commons

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517. Six of the measures in the Bill are expected to have either a moderate or significant effect for business, with the main impact arising from measures to improve the framework for occupational and personal pension schemes and the extension of National Insurance contributions to benefits in kind. No direct impact on charities or the voluntary sector has been identified.

518. Overall, the Bill imposes the following costs on business:

  • around £34m set-up costs;

  • around £1m a year in additional administration costs; and

  • around £225m a year in additional National Insurance liability.

    519. A full Regulatory Impact assessment for the Bill is available in the library of each House of Parliament, and on the DSS website

    520. The following paragraphs summarise the main points.

    Child Support

    521. Costs to business will occur as cases are transferred to the new scheme and Deduction from Earnings Orders (DEOs) are reviewed to reflect the rate of maintenance payable. Reviews may occur more frequently than now as the rate of maintenance is adjusted through the transitional period. There may also be a slight increase in the number of DEOs issued as the CSA caseload expands. However, this will be offset as the clearer assessment of liability improves compliance by other collection methods.

    522. A significant reduction in information required to make an assessment will generate savings for business. Less information will required from employers on non-resident parents’ circumstances and income details for parents with care will no longer be required at all.

    523. These changes are not expected to increase overall business costs.

    State Second Pension

    524. The introduction of the State Second Pension does not impact directly on employers. However, the arrangements for contracting-out of the State scheme, in particular the National Insurance Rebate, need to be changed in order to reflect the reform of SERPS. This may affect employers.

    525. The Government has issued a consultation paper Structure of rebates for the State Second Pension to seek views on the future contracting-out regime.

    526. The consultation period will run until 14 January 2000. The Government will publish a full Regulatory Impact Assessment once proposals have been finalised.

    Occupational and Personal Pensions

    527. Measures to speed up the winding-up of occupational pension schemes will lead to additional administrative costs for Opra of up to £2.6 m per year. As these costs are recovered by a levy on pension schemes, the cost will pass to the sponsoring employer or the schemes themselves. In addition, some schemes will be required to report to Opra on the winding-up process, at an estimated total cost of up the £1 m per year.

    528. Measures to increase the number of member-nominated trustees will impact on costs in a variety of ways depending on the route the employer took to satisfy the current legislation and the route they choose to satisfy the new requirements. Overall, we estimate that the measures will lead to a first year cost of £12.5m and generate on-going administrative savings of £5.3m per year.

    Clarification and Alignment of Inspectors’ Powers

    529. As a whole, the greater clarity these measures provide should benefit employers. However, the removal of discrepancies between BA and Local Authority (LA) powers may lead to some increase in the number of inspections conducted by LAs. Additional costs to business estimated at £150,000 a year.

    Recovery of Housing Benefit Overpayments

    530. The measure will reduce costs as landlords who report suspected fraud may no longer be required to repay any subsequent overpaid benefit.

    Extension of Class 1A NICs to Benefits In Kind

    531. Employers will be required to administer and pay class 1A NICs on an extended range of benefits in kind. While the scheme has been designed to minimise the administrative burden placed on employers, we estimate additional costs of £20m in set-up costs, £2.5m a year in on-going administrative costs and £225m in increased NICs liability.


    532. Section 19 of the Human Rights Act require the Minister in charge of a Bill in either House of Parliament to make a statement, before second reading, about the compatibility of the provisions of the Bill with the Convention rights (as defined by section 1 of that Act). The Secretary of State for Social Security has made the following statement.

    "In my view the provisions of the Child Support, Pensions and Social Security Bill are compatible with the Convention rights."


    Administration Act

    The Social Security Administration Act 1992: the Act that contains most of the rules and regulation-making powers to specify how social security benefits should be claimed, paid and administered. It consolidated the existing legislation in 1992, and has been amended subsequently. See also the Contributions and Benefits Act.

    Attendance Allowance (AA)

    A non-contributory, tax free, non-means-tested benefit paid to meet the extra costs arising from the care needs of elderly and disabled people. Paid at two rates: higher rate (needing care day and night) and lower rate (needing care day or night).

    Basic Retirement Pension (Basic Pension)

    The flat rate state pension paid to people who have met the minimum contribution requirements. Married women, widows and some widowers can receive a pension based on their spouse’s contribution record.

    Child Benefit

    A non-contributory, non-means tested, non-taxable benefit payable for each child in a family from birth up to age 19, or to a fixed termination date related to the end of non-advanced secondary education.

    Contributions and Benefits Act

    The Social Security Contributions and Benefits Act 1992: contains most of the provisions for setting out the rules for National Insurance contributions and entitlement to social security benefits (with the main exception of Jobseeker's Allowance). It consolidated the existing legislation when it was introduced in 1992, and has been amended since then. See also the Social Security Administration Act.

    Disability Living Allowance (DLA)

    A non-contributory, tax free, non-means-tested benefit, introduced in April 1992, to meet the extra costs of care and mobility needs of people who became disabled before the age of 65. There are two components: a care component (paid at higher, middle or lower rate) and a mobility component (paid at a higher or lower rate).

    Incapacity Benefit (IB)

    A taxable contributory benefit introduced in April 1995 to replace Sickness and Invalidity Benefits for people who are unable to work because of illness or disability. Payable weekly at 1 of 3 rates:

      a short-term lower rate: payable to those who do not qualify for Statutory Sick Pay, for the first 28 weeks of incapacity

      a short-term higher rate: payable from 28 weeks to 52 weeks of incapacity

      a long-term rate: payable after 52 weeks of incapacity

    Income Support (IS)

    An income-related benefit introduced in 1988, as successor to Supplementary Benefit, to support people not in remunerative work, whose net income is less than a minimum level set by Parliament, and determined by age, family membership and other circumstances.

    Invalid Care Allowance (ICA)

    A non-contributory, non-means-tested benefit for people who give up the opportunity of full-time work to provide care on a regular and substantial basis (at least 35 hours or more a week) to a severely disabled person.

    Jobseekers Act 1995

    The Jobseekers Act 1995: established Jobseeker's Allowance.

    Jobseeker's Allowance (JSA)

    A benefit introduced October 1996 to replace contributory Unemployment Benefit and income-related Income Support for all those over 18 needing financial support because of unemployment, administered jointly by Employment Service and Benefits Agency.

    Lower Earnings Limit (LEL)

    The level of earnings below which there is not a liability for employees to pay National Insurance contributions. It is also the level at which people secure entitlement to basic contributory benefits. Earnings above this point (and up to the Upper Earnings Limit) accrue entitlement to SERPS or to contracted-out rebates.

    National Insurance contributions (NICs)

    Contributions payable by those in work and their employer into the National Insurance fund, which are used to pay contributory social security benefits to qualifying individuals. Self-employed people pay a lower rate but have more limited rights to benefits. Contributions are divided into six classes, which bring access to different benefit entitlements:

    The Welfare Reform Act (Section 69 and Schedule 9) introduces a new Primary Threshold as the point from which employees start to pay NICs. This means that from April 2000 employees will not pay contributions on earnings below the new Primary Threshold. It is proposed that from April 2001, the Primary Threshold will be aligned with the Secondary Threshold and as such, the Income Tax Personal Allowance. However, where an employee has earnings between the prevailing Lower Earnings Limit, and the new Primary Threshold, they will be treated as if they had paid contributions on those earnings to protect their ability to build up entitlement to contributory benefits.

    Class 1: Payable by employed earners on all earning between the Lower Earnings Limit and Upper Earnings Limit, and by employers on all earnings above the Earnings Threshold. Class 1 contributions give access to all National Insurance benefits, both at a flat rate and with earnings-related increases where relevant (provided that the individual meets the specific conditions of entitlement for each benefit).

    Class 1A: Contributions paid by employers in respect of employees' car and fuel benefits. The charge is based on the cash equivalent of the car benefit and the car fuel benefit provided for private use of the employee.

    Class 1B: Contributions paid on settlements (PAYE Settlement Agreements) made with the Inland Revenue by an employer. This class of contributions was introduced in April 1999.

    Class 2: Flat-rate contribution paid by self-employed earners. Benefits are payable at the basic rate only, and there is no entitlement to certain benefits (for example Jobseeker's Allowance).

    Class 3: Flat-rate voluntary contributions payable for any period when people were not liable to pay class 1 or 2 contributions because they were not employed or were outside of the UK.

    Class 4: Profit-related additional contributions payable by self-employed earners with profits above an annual threshold, up to an upper threshold equivalent to the Upper Earnings Limit for Class 1 contributors. These contributions do not give entitlement to any additional benefits.

    Occupational Pension Scheme

    A scheme organised by an employer or on behalf of a group of employers to provide pensions and/or other benefits for, or in respect of, one or more employees on leaving service or on death or retirement.

    Pensions Act 1995

    This Act provides a framework of statutory obligations on employers, trustees, scheme professionals and others connected with pension schemes in order to provide greater security for scheme members.

    Personal Pension

    An arrangement between an individual who is self-employed, in non-pensionable employment or who is not a member of an employer's scheme, and a pension provider (such as an insurance company) which enables the individual to make provision for a pension on a money purchase basis. See also occupational pension scheme.

    An Appropriate Personal Pension (APP) is a personal pension scheme that has been certified as suitable for contracting out of SERPS. APPs are not available to the self-employed.

    Severe Disablement Allowance (SDA)

    A tax-free, non-contributory benefit for those incapable of work for at least 28 weeks who do not qualify for Incapacity Benefit. Severe Disablement Allowance is being withdrawn for new claimants from April 2001 but those already receiving the benefit will continue to do so

    Social Security Act 1998

    Provided for a new system for making decisions on cases and handling disputes and appeals. Implemented for child support in June 1999.

    Tax Year

    The tax year is the period within which liability to pay Income Tax arises, and runs from 6 April in one year to 5 April the next. The tax year for 1999-2000 runs from 6 April 1999 to 5 April 2000.

    Training Allowance

    A weekly allowance paid from public funds to people participating in certain courses of training, instruction or work experience provided by, or in pursuance of arrangements made with, the Secretary of State for Education and Employment under section 2 of the Employment and Training Act 1973. A training allowance consists of a basic element equivalent to the participant’s benefit entitlement when unemployed plus, where appropriate, a training premium or top-up, reimbursement of travelling expenses, and living away from home allowance.

    Upper Earnings Limit (UEL)

    The level of weekly earnings above which there is no liability for employee National Insurance contributions. It sets the upper limit for the weekly earnings on which Additional Pension accrue and which qualify for contracted-out rebates. See also Lower Earnings Limit.

    Widows’ Benefits

    Widows’ Benefits are available to working age widows and entitlement is based on the National Insurance contribution record of the deceased husband. They are to be replaced by Bereavement Benefits, which will be available equally to widowed men and women on the same basis – based on the late spouses’ National Insurance record.

    Welfare Reform and Pensions Act 1999

    Introduced a range of measures relating to Social Security benefits, pensions and National Insurance contributions.

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Prepared: 2 December 1999