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Lynne Jones: Is not the problem with the winter fuel allowance that there is no built-in annual increase in its value? Is there not a danger that the same thing will happen to the winter fuel allowance as happened to the pensioners' Christmas bonus if it is held at £200 or not increased every year?
Mr. Cousins: My hon. Friend is right, but it is a matter of fact that it has gone up like a rocket. If we could achieve the same for the pension credit, I would be tremendously happy. Let us look at the some of the elements of the state pension credit proposal in the time that I have left.
The state pension credit is a sort of third way proposal. People have argued for many years about means-tested benefits on the one hand and universal benefits on the other. The state pension credit is a huge breakthrough in thinking. It is an income-tested benefit that, from the start, will cover more than half the population, and if the relationship between the savings credit and the guarantee credit continues in the way that I have described, it will rapidly cover most of the pensioner population. It is a third way measure in that respect. It breaks through the arguments that we have had for many years in relation to universality and means-testing. However, it has some unfortunate deficiencies. The rate of the benefit is linked to 40 per cent. so these proposals will levy a withdrawal rate on relatively low-income pensioners that equates to
the higher rate of tax. That worries me, because it will cause problems and will reduce pensioners' enthusiasm for the credit.The maximum sum is capped in a way that many pensioners will find confusing. Unlike tax, the pension credit will continue the systems of attributed income. It will be a much better system of attributing income than the ones that we have had hitherto, but it will be a continuation of them. That fact will also undermine the credit's credibility and popularity. Most important, the minimum income guarantee attributes income even from small private sector pension plans of which there will be many in the future. The state pension credit will continue such attribution, so I see little point in the House having a huge argument about what age people should be able to keep their private pension funds without the need to draw down the pension if the lowest income pensioners with the smallest private pension funds are to have income from those pensions attributed to them from the outset.
If the state pension credit could integrate tax and benefits in the way that many of us have hoped for for many years, that would be a huge step forward. Unfortunately, my noble Friend Baroness Hollis made it clear on Second Reading in the other place that that would not occur and that a crucial difference between tax and benefits was to be maintained. The pension credit will be subject to a household measure of income whereas tax is subject to an individual measure of income. That difference will particularly affect women who have smaller pensions both in their own right through the state and through work. I hope that we will be able to change that feature of the Bill. The issue of women who have incomplete contributions that bring them a pension that is smaller than the basic state pension has been mentioned already. I hope that it will be pursued.
During the passage of the Bill, the Government could introduce a savings disregard to the pension credit. Such an important measure could lift people through some of the difficulties that I have described. If the Government were willing to conceive of the pension credit as free standing from the payment of pensions so that the savings credit could be paid from the age of 60 to both the men and women who are entitled to it, that again would be a huge breakthrough in establishing the pension credit as a permanent feature of our system.
The Government must seek to embed their pension reforms so that future Governments cannot tamper with the benefits. The discussion on how that can be achieved goes far beyond this debate. However, I wish that the national insurance fund were a proper trust fund that was defended by trustees with a statutory responsibility to protect it from being raided in the way that it has been by successive Governments. We should do much the same for the state pension credit. It is an important and potentially powerful innovation, but it will be compromised if the benefits cannot be embedded in the system.
People will support the pension credit if they understand it and know that the benefits are embedded in the system. For it to become popular, it must, as far as possible, be a tax-like benefit and not like a traditional means-tested benefit. The Government's proposals have not yet achieved that aim, which would be consistent with their plans. If we could go further and embed the benefits
in the system, the credit would become popular and enable the Government to secure their objectives in a way on which people could rely.There is little point in a constant stream of innovations for pension products and pension planning devices—whether devised by the state or the private sector—if people cannot rely on their being permanent features that will enable them to plan over 30 or 40 years. Our objective must be to make the state pension credit proposals in the Bill into something on which people can rely in the longer term as a permanent feature of pension planning. I hope that we will succeed and—
6.55 pm
Mr. Steve Webb (Northavon): It might be helpful to the House if I clarify what we shall vote on and describe what is and is not in the Bill. The State of State's speech might—I am sure inadvertently—have misled the House into thinking that certain provisions are in the Bill when they are not.
The Secretary of State said that a typical pensioner would be £8 a week better off, and he seemed to imply—I may have misunderstood him—that that was because of the Bill. From April, the minimum income guarantee will be £98 and the promise is that—as a result of inflation or, possibly, earnings indexation—it will be £100 from April 2003. Even if one puts a charitable interpretation on the difference between the two figures and counts it as a gain, it involves an increase of £2 for pensioners on the minimum income guarantee. The Secretary of State said that the increase would be £8, so something does not quite add up. I think that he is counting things that have already happened, and including the increase in the minimum income guarantee from last April when it was £92—or possibly even the increase from the April before that.
The minimum income guarantee has gone up significantly, but the Bill has had nothing to do with that. The £98 and the £100 for next year have already been announced. Whether we pass or ditch the Bill, the figure for next April will still be £100. None of the gains and none of the figures for the minimum income guarantee that the Secretary of State quoted are attributable to the Bill.
I may be wrong but, as I understand it, the Bill does not contain the stuff about the capital limits. All that the capital limits stuff does is change the imputed rate of income on savings through the income support system, and that can be done by regulation anyway. That provision is not in the Bill. So if we got rid of the Bill or had never had it, what would we lose? The answer is the savings credit.
I want to focus on whether the savings credit will achieve the two things that are claimed for it. Will it reward today's pensioners for having saved in the past and will it encourage tomorrow's pensioners to save for their old age? Both claims are fundamentally questionable.
First, and most obviously, the savings credit will not reward those people who have been thrifty if they do not claim it. The Secretary of State poured scorn on his Department's figures for non-take-up of the minimum income guarantee. I accept that they are estimates, but Baroness Hollis told the other place that one in three pensioners entitled to the pension credit would not take it
up when it is introduced. If half of all pensioners—that is 5.5 million—are to receive the credit, 1.5 million or more will miss out on their entitlement in year one. What sort of scheme is it if it rewards people according to the lottery of whether they take it up? It will not be an entitlement like the pension. If we delivered the cash with the pension, we would guarantee that it reached the people who are entitled to it, but these proposals are a lottery, and one in three of those who have saved will not receive the credit.As the hon. Members for Newcastle upon Tyne, Central (Mr. Cousins) and for Stafford (Mr. Kidney) pointed out, women with incomplete contribution records will not receive the credit in full. Not only are they penalised for having brought up children by receiving a grotty pension, but they will be penalised again through receiving a grotty savings credit. The first part of any savings that they have been able to muster will be used to bring them up to the basic pension, and they will receive a reward only on what is left thereafter. The system will penalise not only the one in three who do not claim, but women who have taken care of children.
The modern social security system provides benefits for having cared for children, but it did not begin to do so until the late 1970s. Women retiring now had their child-bearing years before such protections were introduced. When the hon. Member for Stafford intervened on the subject of women with incomplete contribution records, the Secretary of State gave a rather feeble response and asked, "What if they did not choose to contribute?" It is not a question of not choosing, because those women brought up their children when the social security system did not value child rearing. Not only are those women punished by receiving a grotty pension when they retire, but they will punished again by receiving a poor savings credit.
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