Select Committee on Social Security Fifth Special Report





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.


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.

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