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The Parliamentary Under-Secretary of State for Work and Pensions (Maria Eagle): Ah.
Mr. Willetts: I am pleased to get a hum of approval from the Minister. I would not take the pension credit away, but I wish that we had the alternative strategy that I have outlined.
I would now like to consider three particular points on the proposal. The hon. Member for Stafford (Mr. Kidney), who is no longer in his place, made a valid point about incomplete contribution records. I asked the Secretary of State a parliamentary question on that point nearly a year ago and I was told that some 2.9 million pensioners were in receipt of a partial pension. Many of those are women. We should remember, when we hear the claims of how marvellous the pension credit will be for pensioners, that 2.9 million pensioners—nearly a third—do not get the full value of the basic state pension. For them, their savings will have to go towards increasing the basic state pension to the full value and they will not get the 60 per cent. top-up—or whatever Labour Members fondly hope that those pensioners will get.
We have not yet discussed the interaction between the pension credit and nursing homes. One of my frustrations with the Secretary of State and his Department is that they
have a blind spot about nursing homes and their costs. That is why the Government got into a muddle over the winter fuel payment, which they wrongly claimed was being paid to all pensioners when it was not paid to pensioners in care homes. We need to know how pensioners in care homes will be affected by the pension credit. The Minister in the other place said that
- "people in residential care or care homes will enjoy both the savings element and the guarantee element"—
- "Whether local authorities go on to recover all or part of that in increased charging will be for them to determine in consultation with the Department of Health."—[Official Report, House of Lords, 18 December 2001; Vol. 1858, c. 191.]
- "Unless changes are made to the existing Department of Health guidelines, the immediate beneficiaries of Pension Credit paid to pensioners in residential care could be local authorities."
We are all waiting with bated breath to know what decision the Government will reach on another aspect of the pension credit—the treatment of earnings. Considerable confusion still exists on that point, even after days of debate in the House of Lords. We thought that the Government believed it to be important to encourage people to carry on in work, if at all possible, with new flexibility. However, let us consider the case of two pensioners, both aged 67, who live side by side in a block of flats. One has a £30 a week pension from Tesco to boost the basic state pension and the Secretary of State claims that that person will get help from the pension credit. The other pensioner has only the basic state pension and goes out to work at Tesco and earns £30 a week. Is the pensioner who works to earn £30 a week to be entitled to the same level of support as the pensioner with the occupational pension? That is a point on which we have regularly pressed Ministers in another place. We have not yet been told whether the calculation of the pension credit will treat earnings in the same way as it treats income from savings.
Mr. Darling: That is an important point, and I specifically said that we propose to treat income from work in the same way as money from occupational pensions or savings. I mentioned that, although, clearly, the hon. Gentleman may have been distracted at the time.
Mr. Willetts: I welcome that. We shall want to check the detail in Committee, but it seems that the only logical position is to treat earnings in the same way as one treats savings. I presume that that means that pensioners will not claim the working tax credit. There is no upper age limit on the working tax credit, and I am sure that the interaction of the working tax credit and the pension credit—one of the many credits that the Government regularly throw in front of us—will be considered by the Committee in great detail.
I want to return to the issue of whether the pension credit will tackle the pension crisis that confronts us as every day passes. That crisis is caused by a number of factors: the closure of occupational pension schemes to new members; a catastrophically low level of saving; a spread of means-testing; increasing complexity, which means that financial advisers are more and more reluctant unambiguously to advise people that it is in their interests to save; and stakeholder pensions not reaching their target group—sales are very low, and very few of them are to people in the £10,000 to £20,000 income range. The Government's advertising campaign to increase people's knowledge and awareness of the stakeholder pension might be thought of as a success. We know from research, however, that the only consequence of people knowing more about the stakeholder pension is that it leaves them even more confused and uncertain than they were before they started.
We have a low level of saving, and the only solution from Ministers is more means-testing. I invite the House to consider whether means-testing is helping to get us into this mess, and therefore whether more means-testing is really the best way to get us out of it.
6.42 pm
Mr. Jim Cousins (Newcastle upon Tyne, Central): I thank you for calling me, Madam Deputy Speaker, although I am a little surprised to be called at this point.
I am happy to support the Bill on the basis that it will add to security and increase fairness, particularly for the many pensioners—or, as I ought to say, for the many people over 60—who have now and will have in the future small savings and small pensions other than the basic state pension. They in particular have not benefited fully from the introduction of many of the Government's measures in the minimum income guarantee, because their small savings, earnings and work pensions take them above the limit. The fact that this state pension credit proposal will vastly extend the coverage and reach of the pension credit compared with the minimum income guarantee illustrates how many of those people there are.
I am also encouraged to support the Bill on the basis of the failure of the hon. Member for Havant (Mr. Willetts) to answer my question. If the alternative to the state pension credit and the minimum income guarantee will be the basic rate of state pension, we need to know what will be the relationship between the basic state pension and average earnings. The fact that the hon. Member for Havant could not answer that point illustrates the need for the state pension credit proposals.
Mr. Willetts: We do not know that about the pension credit either. We do not know what the long-term uprating formula will be for the pension credit.
Mr. Cousins: That is a very interesting point, which I intend to try to address.
My difficulty with the Bill relates to whether it forms a permanent part of the pension system. Is it something on which people can rely, that they can plan for, and that they can build in to their expectations, or is it a short-term fix to deal with the limitations of the minimum income guarantee that I have just set out? One of the most important aspects is the uprating system. The Government have made it clear that the guarantee element of credit
will be uprated in line with earnings for this Parliament. The crucial question, however, is the relationship between the savings credit and the guarantee credit. Because of the way in which savings credit is placed on top of the guarantee credit—if that were calculated as we currently understand it—there would rapidly be an enormous increase in the number of people who have an entitlement to pension credit. The reach of savings credit—because of the way in which it sits on top of the guarantee credit—would advance faster than the rate of increase in earnings. If that were sustained and built into the pension credit as a permanent feature, it could be an enormous strength, but it could also be a source of enormous weakness, as it is very vulnerable to future changes in assessment and eligibility.One of the objects that we ought to seek to achieve with the pension credit is to make sure that the relationship between the savings credit and the guarantee credit is in the form that is now proposed. Unless we can secure that, there is a danger that the benefits of the pension credit system would be rapidly changed by a future Government. Conceivably, it could rapidly change even if there were not a change of Government, because these schemes are vulnerable to changes in policy.
The big protection against a change in the way in which the savings credit is assessed would be a scheme of such robustness and popular support that no future Government—whether of the Labour party or another party—could seek to change it. That is precisely what has happened to the winter heating allowance. It was introduced and it has now become embedded in our system. Pensioners understand it, it carries huge popular support, and it cannot now be changed. The official Opposition have given up on their attempts to change it.
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