APPENDIX
REPLY BY THE GOVERNMENT TO
THE SEVENTH REPORT OF THE SOCIAL SECURITY
COMMITTEE SESSION 1999/2000 ON PENSIONER POVERTY (HC 606)
INTRODUCTION
1. The Government is committed to ensuring that every
pensioner has a secure and fulfilling retirement. Part of that
means we must ensure that every pensioner has a decent income
in retirement.
2. Our first priority has been to tackle poverty
amongst pensioners and respond to the growth in income inequality
between the poorest and richest pensioners. Over the last 20 years,
the incomes of the richest fifth of pensioners rose by 80%, but
those of the poorest fifth grew by only 30%. And the proportion
of pensioners with income less than 40% of average income rose
fivefold.
3. In response to these problems the Government introduced
the Minimum Income Guarantee. The result if that the poorest pensioners
are now on average over £8 better off a week - over and above
inflation - than they were in 1997.
4. The introduction of the Minimum Income Guarantee
has been backed up by the launch of a Take-Up campaign to make
sure that help gets to those who need it most. And the new tele-claims
service means pensioners can claim from home, over the phone.
The early indications confirm that many more pensioners are now
receiving extra help as a direct result of this campaign.
5. The Government also promised more help for all
pensioners. Which is why we have cut VAT on fuel and introduced
the £150 a year Winter Fuel Payment paid to every pensioner;
we've increased the personal allowance for pensioners beyond normal-RPI
price indexation; and we've introduced free TV licences for the
over 75s (who tend to have lower incomes) which will be paid for
the first time this Autumn.
6. Our policies for future pensioners will ensure
that as many people as possible can build up a decent second-tier
pension by the time they retire:
- the new Stakeholder Pension gives the option
of a safe, flexible, low-cost way to save for a pension to around
5 million workers who do not have access to an occupational pension,
and for whom a personal pension is not a cost-effective option;
and
- reforming SERPS with a more generous State Second
Pension to give more security in retirement for 18 million low
and moderate earners, carers and disabled people with broken work
records. This will at least double additional pensions of low
earners. Carers and disabled will also get a second pension for
the first time. This means that someone earning £120 a week
will get £40 a week more from the State Second Pension than
they would have got from SERPS.
7. We are now spending £6.5 billion extra on
pensioners this Parliament - that's over £2 billion more
than we would have spent had we only linked pensions to earnings.
And half of this extra £6.5 billion is going to the poorest
third of pensioners. Our policies have already ensured that pensioners
on the lowest incomes are receiving more than they would have
received from linking the Basic State Pension to prices, or even
to earnings, since the beginning of this Parliament.
8. But now we need to go further - to do more for
pensioners on low and modest incomes. To make sure that
those with modest savings or occupational pensions will do better
under our proposals and thereby share in the rising prosperity
of the nation.
9. The current policy on savings penalises those
with modest occupational pensions and modest savings. Not only
will we now end the penalty on savings, but we will now reward
savings. This will be a further radical change: for the first
time in the history of the Welfare State, people will get something
more for saving.
10. In the last Budget, we took the first major step
to improving the situation by doubling the lower capital limit
and increasing the upper limit to £12,000. These new rules
come in next April and as a result, half a million people will
gain an average of £5 a week.
11. The new Pension Credit will ensure that not only
do we remove the penalty for savings, but that we actually reward
savings. We will abolish the capital limits, and instead take
into account the income received from savings. And, for every
pound saved someone receiving the Pension Credit will get a cash
addition. As promised in the Budget, we will be publishing detailed
plans for consultation on a new Pension Credit later in the Autumn
12. Pensioners will also benefit from the drive to
improve the delivery of pension and benefit services through a
new dedicated pensions organisation. These plans acknowledge the
range of services which pensioners need to access if we are to
overcome pensioner poverty and social exclusion.
13. The Government is determined that pensioners
enjoy security in retirement. Our pensions strategy, underpinned
by the foundation of the basic state pension, will ensure that
security.
RECOMMENDATIONS AND CONCLUSIONS
We recommend that the Government should commission
research to establish a minimum income standard for households
over pension age in both absolute and relative terms, and that
such research should be conducted at regular intervals to inform
the Government's progress in countering poverty and social exclusion
among older people. (Recommendation (a) Paragraph 22)
14. The Government understands why the Committee
has suggested research in this area, but does not accept that
there is a single research method which can be used to assess
the adequacy of benefit levels. What people need to live on varies
greatly depending on their needs, and a range of factors such
as proximity to friends and relatives.
15. The Government always considers a range of research
when setting benefit rates and has commissioned a wide range of
research into pensioners' incomes, lifestyles, attitudes and aspirations
and will continue to do so.
Generally, older pensioners face greater challenges
than those who are recently retired. They are, currently, less
likely to have an occupational pension; where they do, this will
be diminished, in relative terms, because it will have been linked,
at best, to prices and not incomes. While the coverage of occupational
pensions is likely to increase, the price-related nature of them
will not, meaning that this will remain as both a long-and-short-term
issue. Also, older pensioners' income from earnings and investments
are lower. As well as having a lower income, older pensioners
can face greater expenses, related to disability, mobility needs
and depreciation of assets. Therefore, we believe the need to
provide enhanced assistance to older pensioners will need to remain
a long-term objective for any government. (Recommendation (b)
Paragraph 28)
We recommend that in order to directly target
help on the oldest pensioners who are also likely to be the poorest
the Government should raise the level of retirement pension for
those aged 80 so that it is, and remains, at the equivalent level
of the Minimum Income Guarantee. (Recommendation (o) Paragraph
143)
16. The Government has promised and delivered help
to all elderly pensioners. This year's Winter Fuel Payments and
free TV licences will provide nearly £5 a week to this group.
However, there is a wide range of incomes even among older age
groups. Among single pensioners in the 'over 80s' group, average
incomes ranged from £65 for the poorest fifth, to three times
this level (£195) for the richest fifth. The Government believes
that it is right to confront income inequality and will continue
to target resources at the poorest pensioners through the Minimum
Income Guarantee.
We welcome the Minister's recognition that there
are particular problems and challenges regarding pensions for
people from ethnic groups. However, we are not convinced that
adequate information currently exists regarding the scale or true
nature of these problems and we therefore recommend that the Government
commission research to provide more information concerning the
extent of poverty among ethnic minority pensioners. (Recommendation
(c) Paragraph 45)
17. The Government is committed to tackling poverty
amongst all pensioner groups, including those from ethnic minorities.
While there are no plans to undertake any new research in this
area, there is a range of data available. In particular, the Family
Resources Survey can provide broad information on incomes of ethnic
minority pensioners.
18. There is also related research in this area.
The Economic and Social Research Council's (ESRC's) `Growing Older'
programme includes research on ethnic minority pensioners and
quality of life. Findings from a qualitative phase of the study
will be used in the analysis of nationally representative survey
data on ethnic minorities. The Department of Social Security is
represented on the ESRC's advisory group and is in close touch
with emerging findings from the research which will be fed into
policy discussions. The Department of Social Security is also
making a substantial funding contribution to a major inter-departmental
longitudinal study: the English Longitudinal Study of Ageing (ELSA)
will track a national sample of people aged 50 and over, to provide
information on changes in socio-economic circumstances, labour
market participation and health as people age. The sample will
include people aged 50 or over from ethnic minority groups.
19. Poorer pensioners from ethnic minority groups
benefit from the government's targeted policies as pensioners
from ethnic minority groups tend to have lower incomes. They will
continue to benefit from the Government's policies to help today's
pensioners, such as the Minimum Income Guarantee
20. Incomes of pensioners from ethnic minority groups
are expected to increase over time, since each new wave of retirees
will have (on average) spent a larger part of their working life
in this country and had more opportunity to build up substantial
pension rights. In addition, people from ethnic minority groups
will benefit from the Government's policies to help people make
provision for their retirement. These include the introduction
of the State Second Pension and stakeholder pensions as well as
policies to improve job prospects, such as the New Deals.
We note that there is a potentially serious problem
which could result in many self-employed people being reliant
on means-tested benefits upon retirement, a fact which is exacerbated
by the changing nature of self-employment and the capital assets
owned by the self-employed. We recognise that there is an argument
for compelling the self-employed to make provision for a second
pension, and that there is scope for this to be achieved via the
state second pension. We recommend that this option be considered
once the Pension Provision Group has produced its forthcoming
report into pension provision for the self-employed. (Recommendation
(d) Paragraph 49)
21. The Government recognises that it is important
to ensure that the self-employed have adequate pension provision
and will continue to encourage people to save.
22. The Government has given everyone, including
the self employed, new options to save through Stakeholder pensions.
Once the Pension Provision Group's report on pension provision
for self-employed people is finalised, it will be published.
We agree that the personal expenses allowance
for pensioners living in residential care is inadequate. We recommend
that the Government commissions research to establish the level
of personal expenses, which is necessary to enable pensioners
in institutional care to live their lives with dignity. (Recommendation
(e) Paragraph 51)
23. The Government recognises that it is important
to ensure that pensioners have sufficient funds to live their
lives with dignity regardless of the setting. The personal expenses
allowance is calculated to allow for this. In setting the level
of this allowance we have taken account of the generality of people
in homes, which includes people who have fewer personal needs
than those living in their own homes. It is expected to cover
the cost of minor items for residents and under the new community
care scheme, local authorities ensure that people retain a similar
sum for personal expenses. This year, the personal expenses allowance
received an above inflation increase and is currently £15.45.
24. When assessing a persons ability to contribute
towards their care home fees, local authorities have the discretion
to allow a resident to retain additional funds in special circumstances,
for example if an unmarried partner at home is left at home without
access to sufficient money to live on.
25. Raising the personal expenses allowance is only
one of a number of measures that could be taken to allow pensioners
to live with dignity and independence in residential care. Already
the Department of Health is taking a number of measures as part
of their response to the Royal Commission on Long Term Care that
will help achieve this goal. Additionally the Care Standards Bill
will put in place regulations that will encourage residential
or nursing home owners to promote the independence and dignity
of their residents.
The evidence we have received leads us to conclude
that it would be complacent to think that disparities in the incomes
of older and younger pensioners and between retired men and women
are set to disappear, although they may narrow. However, the oldest
set to remain among the poorest, and particularly the oldest women.
In addition, we believe that there are now new challenges to be
faced, particularly in ascertaining the true situation regarding
poverty amongst pensioners from ethnic minority groups and how
this can best be tackled, and regarding the pension provision
of the self-employed people. (Recommendation (f) Paragraph 52)
26. The Government recognises that although much
has been achieved over the last few years, there is more to do.
We have responded to the challenges that lay ahead setting in
place a broad and coherent strategy to tackle poverty amongst
the poorest pensioners.
27. The Government accepts the Committee's conclusion
that older pensioners, particularly women, those from ethnic minority
groups and the self-employed face specific challenges. These groups
will continue to benefit from targeted policies to help the poorest
pensioners.
We...conclude that those on the lowest incomes
throughout their working lives or with intermittent and fluctuation
earnings will be largely dependent on SERPS and the state second
pension, to lift themselves above the [Minimum Income Guarantee]
MIG. While we have not found agreement on a single definition
of poverty, we doubt that anyone would draw the line below the
MIG, and note.... that this is a level which the Minister has
said he could not live on. (Recommendation (g) Paragraph 67)
28. We have already announced that the MIG will be
increased to £90 per week, so that no pensioner need live
on less than this. The wider package of pension measures will
be announced at the time of the Pre-Budget Report.
We conclude that the present policy of uprating
basic state pension, and the state second pension during retirement,
in line with prices, while the MIG is linked to earnings, as is
the state second pension at the time of retirement, is unlikely
to be sustainable in the long run.
(Recommendation (h) Paragraph 77)
29. The Basic State Pension is the foundation of
pension provision. It was always intended that it would be supplemented
by other income - such as occupational pensions and later from
the state through additional pensions such as SERPS or the State
Second Pension. The Government has given a commitment in its Manifesto
to retain the basic pension and to increase it at least in line
with prices.
30. By 2020, restoring the earnings link would cost
an additional £20 billion a year. That's a 50% increase in
the current pensions budget. But crucially it wouldn't solve the
problem of those on low and modest incomes. And it wouldn't do
nearly enough to help those with small savings and little growth
in their incomes when they retire.
We have concluded that, whatever the merits of
the argument as to whether [the basic state pension should be
linked to earnings], a rise in the level of state pension by index
linking it either to an index based on the FBU/Age Concern concept
of low cost but acceptable income or to earnings is affordable,
but only in the context of people being prepared to pay higher
taxes and national income contributions in the long run. (Recommendation
(i) Paragraph 108)
31. The Government believes that the Basic State
Pension should remain as the foundation of pension provision and
that it has to be affordable in the long term.
We recommend that the current campaign to encourage
the take-up of the Minimum Income Guarantee should not be a one-off
exercise, but part of a longer term, sustained strategy to improve
take-up among all those who are eligible. (Recommendation (j)
Paragraph 124)
32. The Government accepts the Committee's recommendation
that this campaign should not be viewed in isolation, and is keen
to ensure that people are in an informed position to make choices
on whether to claim benefits to which they may be entitled. The
Department of Social Security is involved in a wide range of national
and local initiatives to ensure accurate and accessible information
is available, including leaflets, information officers and liaison
with local groups.
33. The Department of Social Security is introducing
a new modernised service which will give pensioners a range of
choices to sort out their claims without having to visit their
local office; including by telephone and in due course the internet.
It will also be considering more automatic means to deliver benefits
within the new pensions organisation, which aims to provide a
unified, modern service for today's pensioners.
A take-up campaign for Income Support among pensioners
can not fully succeed unless undertaken in tandem with identification
of those eligible for Attendance Allowance. We recommend that
the DSS work more closely with local government and local pensioner
organisations to identify pensioners who are eligible for Attendance
Allowance and who therefore quality for Income Support and to
encourage them to claim both benefits. (Recommendation (k) Paragraph
126)
34. The Government recognises the take-up of Attendance
Allowance is an issue, and believes that potential take-up can
be increased through greater public confidence about decisions
on entitlement.
35. To ensure pensioners are better informed, the
Chancellor of the Exchequer recently announced the outcome of
a cross-departmental review on the co-ordination of services and
Social Security benefits for older people. The Government will
provide additional funds totalling £30 million over the next
three years to pilot new approaches to giving information to older
people about the services and benefits (such as Attendance Allowance)
they could be entitled to. This will include a "Care Direct"
phone line, to provide advice on care and support services and
benefits.
We recommend that the DSS should conduct research
into take-up of the Minimum Income Guarantee among ethnic pensioners
and into the best means of encouraging different ethnic minorities
to claim. (Recommendation (L) Paragraph 130)
36. The Minimum Income Guarantee (MIG) take-up campaign
was designed to encourage all pensioners that may be entitled
to claim. Wherever possible, the needs of ethnic minority groups
were taken into account. For example, the tele-claims service
offers Language Line Facilities, which means that non-English
speaking claimants are offered a 3-way conversation between themselves,
operators and a translator.
If the Government is to realise its long-term
aim of giving pensioners solid state pension provision on which
they can build, without their own pensions and savings being eroded
in old age by means test, and if we are to make a start in bridging
the gap towards our proposed target as proposed by the National
Pensioners Convention, we have concluded that an increase in the
state non-means-tested pension is inevitable and that it should
be done sooner rather than later. (Recommendation (m) Paragraph
141)
We await details of the proposed pensioner's credit,
but unless it can achieve [the objective of reducing the number
of pensioners reliant on means-tested benefits in order to avoid
poverty], and meet our concerns for the mid-term future, we believe
that the earnings link for uprating the basic state pension will
need to be restored to provide a firm financial platform for retirement
on which people can build for the future. (Recommendation (n)
Paragraph 141)
37. The Government will be setting out its proposals
for the pension credit and other pension provision in the Autumn.
38. The Government wants to do more for the pensioners
who have worked hard and saved to provide for their retirement.
The Government has already announced plans to increase capital
limits, so that from April 2001 those pensioners with savings
up to £12,000 will be able to benefit from the MIG. This
will benefit half a million pensioners by an average of £5
a week. The Government intends to introduce a Pension Credit,
which will go further in two ways.
39. First by abolishing the capital rules. The current
system of capital rules for pensioners discourages saving by denying
extra help for those pensioners who have a little put aside. And
the system assumes some people are getting a twenty per cent return
on their savings, substantially above market rates. The rules
we inherited are not a fair way of determining who should get
extra help from Government in retirement. Instead, we should get
rid of the capital limits and look at the income pensioners receive
from their savings. This would be a fairer and more realistic
way of deciding who receives extra help.
40. Secondly, the Pension Credit will not merely
remove the penalty for saving: it will create a reward for saving.
The Credit will reward people for having an income from a modest
second pension or from other savings. On top of the Minimum Income
Guarantee, for every pound saved pensioners receiving the Credit
will get a cash addition. Instead of falling between two stools,
where they have too much income to qualify for MIG but too little
to raise them above that level of benefit, they will earn a top-up
that gives them a higher weekly income than if they were relying
on the MIG or solely on their savings.
41. It will also enable us to implement reforms to
cut down on all the red-tape and paperwork traditionally associated
with pensions. Too few people are currently claiming what they're
entitled to. Too many people are put off by the bureaucracy and
form-filling. So instead of demanding that pensioners tell us
about their circumstances every week, we'll only want to know
where there are material changes, or when they reach, say, 65
and 75.
|