---

'but shall exclude any income derived from PEPs, TESSAs or ISAs.'.

No. 16, in page 9, line 24, at end insert—

'but subject to the restriction that the income implied by any capital holding shall not exceed the current Bank of England minimum lending rate plus two percentage points, to be averaged over a twelve month period prescribed in the regulations.'.

Paul Holmes: I want to discuss the apparent contradiction in Government policy in relation to encouraging people to continue in some degree of employment after reaching the legal age of retirement—a contradiction that has already been discussed in the Select and Standing Committees.

The Cabinet Office report "Winning the Generation Game" stated that older workers should be encouraged to stay in work and that more flexibility should be available in terms of retirement. The Government have often said that they are keen to maintain and even improve the ratio of workers to pensioners, but their pension credit proposals have been widely criticised as effectively discouraging people from doing part-time work after retirement.

It is widely accepted that encouraging older people to continue in at least part-time work if they wish to do so is a desirable aim. With an increasing proportion of elderly people in the population at large, it makes economic sense for the nation to retain for longer the work contribution, skills and expertise that are based on the years of expertise that older people have. It also makes financial and personal sense for many individuals to continue working for at least part of the week after

23 May 2002 : Column 463

reaching legal retirement age. Many older people would value the potential benefit of extra financial income on top of an inadequate basic state pension, but they would also value very much the opportunity to maintain a lively and active personal contribution to and involvement in society through the opportunities, experiences and interests that work can offer.

Despite the widespread agreement on those views in all quarters and the Government's stated intention of encouraging more pensioners to continue in work, Government policy on pension credits seems designed to achieve precisely the opposite effect. The Select Committee made that point clearly in its second report of 2001–02, which pointed out that the Government's proposals on pension credits disregard only the first £5 of earnings. After that, the equivalent of 40p in the pound is clawed back, effectively imposing a top rate of income tax on pensioners' part-time earnings. The Committee made this observation:

"Many of those who submitted to evidence to our inquiry were highly critical of this aspect of the Credit's calculation. They argue that it offers little, if any, incentive for pensioners to continue working or to seek new employment opportunities. Part-time work is one of the few, simple, methods for a pensioner to increase their retirement income".

As the National Pensioners Convention stressed in its evidence to the Committee,

"part-time earnings could have a significant impact on pensioner poverty."

The Industrial Society made this comment in its evidence:

"By discouraging part-time work after retirement, the Government seem to be giving us an example of un-joined-up Government at its worst."

David Cairns: I have been listening with genuine interest to the case that the hon. Gentleman is making. For those of us who are weighing up the merits of his amendment, will he explain what assessment and research was done into how much more cost would be incurred if, for example, 10 per cent. of pensioners were to carry on working? Can he give us some figures?

Paul Holmes: If more pensioners were to continue working, the Government would benefit in the long run in terms of their poverty strategy. I shall deal with cost later in my speech.

The Select Committee also pointed out in its summary of the evidence that the three charities representing pensioners which gave oral evidence to the inquiry agreed that

"a disregard of around £40 of earnings would be a very productive measure."

Sally West of Age Concern suggested that that would allow the equivalent of

"a day's work without it disrupting the administration of the system".

She said that it would encourage people

"to keep active in work if that is what they wish to do."

In the light of that, the Committee reported:

"We agree with this view and were disappointed that the Secretary of State could hold out 'no hope' of a change in the rules."

It went on to say:

"We urge the Government to reconsider its policy on the Credit's treatment of earnings".

23 May 2002 : Column 464

In the face of those united views from the Select Committee, Age Concern, the National Pensioners Convention, the Industrial Society and many others, the Government's response was simply to make no change at all through its contradictory and self-defeating pension credit proposals. Various groups suggested alternatives designed to remedy the disincentive to work that is contained in the Bill. For example, the Select Committee and Age Concern suggested a fixed level disregard of around £30 to £40 a week, compared with the very low £5 disregard contained in the Bill.

Our amendment offers a simple and clear method of meeting those aims by disregarding those parts of a claimant's hourly earnings that are equivalent to the rate of the national minimum wage. That would achieve two things. First, it would encourage flexible retirement instead of discouraging it, as does the Bill. Secondly, it would provide a real cash incentive to people who wish to continue working after reaching state pension age. As those are supposed to be the stated aims of Government policy, I hope that the Minister will be able to accept the amendment. Or are the Government telling pensioners that they are not prepared to allow them to earn even at the level of the national minimum wage without seeking to impose on them the equivalent of the higher rate of income tax?

Mr. Clappison: I want to speak to amendments Nos. 14, 15 and 16, which deal with three different issues arising out of the definition of income and capital in clause 15.

The first of those is the treatment of compensation funds in cases of industrial injury or medical negligence. How will the Bill deal with income from such funds as regards the pension credit? It is fair to say that this subject generated considerable interest in Committee, not only from my hon. Friend the Member for Daventry (Mr. Boswell), but from the hon. Member for Bassetlaw (John Mann), who drew our attention to the cases of several of his constituents who would be very interested in these provisions. Those cases are deserving of consideration by the House. It is important to revisit the issue, and we await the Minister's response with interest.

Amendment No. 15 deals with income derived from PEPs, TESSAs or ISAs, which is another matter that we raised in Committee. Hon. Members may have heard sufficient of my views on the generality of savings, but this issue falls within that generality. How will those important savings vehicles be dealt with? We are conscious of their general position within the policies of this and previous Governments.

Amendment No. 16 covers the treatment of income from capital. In respect of savings above £6,000, a notional rate of income will be set at around 10 per cent. after that disregard of £6,000. There has been a development since we considered the matter in Committee. The Government had said that well over 80 per cent. of pensioners have savings that fall below the £6,000 disregard. Indeed, the Secretary of State told the Select Committee:

"What we are doing is we are disregarding the first £6000 worth of savings and that covers 84½ per cent. of pensioners. Now, 84½ per cent. of pensioners today do not have £6000."

Since then, my hon. Friend the Member for Havant (Mr. Willetts) received a written reply from the Minister, saying that 60 per cent. of pensioners have less than

23 May 2002 : Column 465

£6,000 in savings. Obviously, 40 per cent. therefore have more than £6,000. The matter is more extensive than we were led to believe.

Against that background, we believe that matters now have a different complexion. We need to hear more about it and, as my hon. Friend the Member for Daventry said in Committee, one would be struggling nowadays to find something that produced a 10 per cent. return on capital. Indeed, a substantial number of pensioners have savings of more than £12,000. The Government's proposals for the treatment of savings assume that they earn between 5 per cent. and 10 per cent. on their savings. We want to hear more ministerial comments on that and I am sure that savers want to hear more from the Minister about the treatment of their income from capital under the Bill.

5.30 pm

John Mann (Bassetlaw): I reiterate briefly comments made in Committee about industrial injuries. I pay tribute to the hon. Member for Daventry (Mr. Boswell) for adding medical negligence to that in Committee.

Industrial injuries are disproportionately important in the coalfields. The recent judgment and the roll-out of compensation in the next year or so mean that many retired miners will receive compensation for bronchitis, emphysema and vibration white finger. In the majority of cases, the compensation will exceed the capital limit of £6,000.

---